(Editor's note: TheStreet today named 111 mutual funds and exchange traded funds, or ETFs, winners and runners-up in its first annual awards ceremony. A list of the funds and related articles can be found on the awards page.)



) -- Commodities are one of the hottest investment categories, with a popular notion being that we're in the middle of an 18-year so-called super-cycle of returns.

Some investors are speculating on higher prices, while others are trying to hedge equity portfolios with commodities, which tend to have a low correlation to stocks.

One of the first exchange traded products offering broad commodity exposure was the

iPath Dow Jones UBS Commodity Index Total Return ETN

(DJP) - Get iPath Bloomberg Commodity Index Total Return ETN Report

. The fund allocates 34% to energy, 29% to agriculture, 16% to industrial metals, 14% to precious metals and 6% to livestock.

Despite expectations of a low correlation to equities, there has been mixed outcomes. According to ETFreplay.com, the correlation between the iPath Dow Jones UBS Commodity Index and the benchmark S&P 500 Index of the biggest U.S. stocks was about 0.20, which is a low correlation, during much of 2007 and into 2008. Early in 2008, the correlation actually went as low as minus 0.50 before skyrocketing to 0.75 during the worst of the financial crisis. It's recently been near 0.20 again.

As the iPath Dow Jones UBS Commodity Index and the strategy of hedging (and speculating) became more popular, Bethesda, Md.-based ProShares came out with the

Ultra DJ UBS Commodity ETF


, which targets twice the move of the iPath Dow Jones UBS Commodity Index on a daily basis. It turns out,

Ultra DJ UBS Commodity

TheStreet Recommends


TheStreet's 2011 Best Funds

award in the


category for exchange traded funds. The ETF climbed 28% in 2010 and has extended its gains this year. The runner-up is

PowerShares Global Agriculture Portfolio



Levered funds made a lot of noise during late 2008 for "not working," which was a function of the daily reset required to meet the stated objective of twice the result on a daily basis. Fund managers buy or sell futures contracts to bring the levered fund in line with twice the original fund -- in this case the iPath Dow Jones UBS Commodity Index. It's that dynamic that has left investors disappointed and explains why the industry advises short-term trading in levered funds, not long-term strategies.

As much negative attention levered funds attracted in 2008, and rightfully so, a funny thing happened as markets normalized: They have been working out as longer-term proxies. This year, the iPath Dow Jones UBS Commodity Index is up 5.1% and Ultra DJ UBS Commodity is up 9.4%. For one year, the iPath Dow Jones UBS Commodity Index has risen 26% and Ultra DJ UBS Commodity has jumped 53%. One thing that got lost in 2008 is that these funds can "work" for longer periods of time than just daily, but this all depends on the combination of up-and-down days.

The question, then, is can a levered long fund like Ultra DJ UBS Commodity "work" over a longer period? There's no concrete answer. It appears as though this type of fund has a better chance of functioning longer term during normal market volatility. Were a repeat of 2008 to ensue, I would have no confidence in a long-term holding period for these funds in terms of closely tracking twice the underlying index.

Ultra DJ UBS Commodity has been a top performer. It just so happens that it was able to double the return of the broad commodity index it tracks. It could have just as easily done poorly, on a relative basis. Anyone using double-long funds, whether for trading or hedging, needs to understand that there can be no certainty of returns relative to the benchmark index for any period beyond one day.

TheStreet awarded "Best Mutual Funds and ETFs 2011" to 111 funds, half of which were winners in their investment category and half runners-up. The criteria are as follows: Mutual funds must have had a three-year history as of Dec. 31 and been open to new client investments, with the minimum not exceeding $100,000. Closed-end funds and ETFs must have had a one-year track record. The rating is based equally on performance and risk. Emphasis is given to longer-term performance, based on total returns minus expenses. Risk measures include standard deviation, size of peak-to-trough (drawdown factor) and duration.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;

click here

to send him an email.