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Top-Rated Commodity ETFs That Beat Stocks

Investors who fear inflation are buying precious-metals funds and reaping 20% returns.

Exchange-traded funds that invest in commodities, particularly precious metals, are holding their own this year after being pounded in 2008. Inflation-fearing investors are turning to these funds as the economy fights its worst decline since the Great Depression.

The commodity ETFs below have earned top grades from Ratings

, and outperformed stocks during the past three months. The precious metals funds on the list have gone further, returning more than 20%. The

S&P 500

has lost 14% since mid-December.

The bull market for commodities came crashing down last summer and fall. But

gold prices

have rebounded, rising 28% since early November, and declines among other commodities have leveled off.

Demand for materials has suffered as consumers spend less and businesses operate below capacity. While that doesn't seem like it would bode well for prices, the funds are

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drawing money

from investors who worry that the trillions of dollars in government aid gushing into the economy will cause runaway inflation.

The precious-metals ETFs below have earned "overall grades" that amount to "buy" recommendations. Two


funds are rated A-plus, the highest mark.

With commodity prices still down sharply since the middle of last year, only two of the ETFs have "overall" grades in the C range, the equivalent of a "hold" opinion. The other three funds fall in the D category,

which means "sell."

The wide swings of commodity ETFs tends to hold back their overall ratings. Ratings uses a computerized model to evaluate a fund's performance and volatility, which is reflected in their "reward" and "risk" grades. Funds with the highest "overall" ratings have attained the best combination of the two.

Richard Widows is a senior financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.