Hard-Asset ETF Boom

NEW YORK (TheStreet) -- Commodities ETFs are all the rage, and investors can get their hands on hard assets with a variety of broad, specific strategies. Hard-asset ETFs are a good way to diversify your portfolio and protect against inflation and broader market turmoil.

As the ETF industry grows, it is increasingly important to select the right fund for your investment needs. Before snatching up shares of hard-asset funds, it is important to build awareness of the products available today and the outlook for the future.

Equity-Based, Hard-Asset ETFs

SPDR S&P Metals & Mining(XME Quote) focuses on U.S. metals and mining firms, with industry giants like Arch Coal(ACI Quote), United States Steel(X Quote) and Alcoa(AA Quote) counted among its top components. The fund's relatively low concentration and low 0.35% expense ratio make XME a good starting place for new hard asset investors.

Market Vectors-RVE Hard Assets Producers ETF(HAP Quote) tracks the Rogers-Van Eck Hard Assets Producers Index, often viewed as the definitive global benchmark for commodity equities.

In addition to metals and mining, HAP includes water and renewable energy among the hard assets in its portfolio. Top HAP components include Monsanto(MON Quote), Exxon Mobil(XOM Quote), Potash(POT Quote) and Deere(DE Quote).

Futures-Based, Hard-Asset Funds

In 2008, iPath launched a line of commodity ETNs that give investors broad or specific exposure to hard assets. Each fund tracks a basket of futures contracts and Treasuries, designed to give investors exposure to the price of the underlying commodity.

These funds are the riskiest of the batch, due to regulatory concerns and debt structure. Since the funds are comprised of notes, rather than equities, investors are exposed to the credit risk of the issuer. Anticipated changes to futures regulation could also restrict the size of these funds and impact their trading capabilities.