Energy ETFs Still Have Room to Fall

Top holdings of XLE include Exxon Mobil(XOM Quote), Chevron(CVX Quote), ConocoPhillips(COP Quote), Devon Energy(DVN Quote) and Transocean(RIG Quote).

Agriculture's allure

Joe Clark, managing partner at the Financial Enhancement Group, finds the PowerShares DB Agriculture Fund(DBA Quote) to be one of the more attractive commodity ETFs. "We definitely believe DBA is the best way for an individual to get into the space," he said. "If I am going to bet on a commodity right now, I am going to bet on something that feeds me."

Clark cautions investors to be on the lookout for signs of deflation in the short term, especially in light of the declining price of oil. "A risk in a commodity culture is deflation," he said. "If a commodity price falls below the input cost, then you have to run for cover."

He notes that oversaturation would prove to be a major drag for commodities. "When there is deflation, all of the inventory is sold as quickly as possible," Clark said. "Such a scenario would flood the market and drive prices down."

Bailout factor

The TARP government program may have been initially intended to stabilize the financial markets, but Springer believes that, in time, it also could have implications for commodities. "Nobody knows for sure if it is going to work," he said. "If it does, we will see a lot of money flooding the market and then inflation could be our next problem."

For investors considering ETFs to protect against such an outcome, Springer likes the PowerShares DB Commodity Index Fund(DBC Quote), the PowerShares DB Oil Fund(DBO Quote) and the iPath Dow Jones-AIG Commodity Index Total Return ETN(DJP Quote).

"Because of the amount of liquidity coming into the economy in the coming months, $700 billion from the U.S. and $600 billion from China, the economy will grow with tremendous inflation and, thus, demand for commodities," he said.

Welch agrees that there will be a continued demand for commodities, but notes there may be new sources. "We are always going to need energy," he said. "It may not always be oil, though. Clean energy is becoming more of a story with the new administration coming in."