Commodity Exchange Traded Funds (ETF) have been with us for the best part of a decade now, but with the range of investment assets and approaches out there that are clamoring for action from investors, why would you choose to invest in a commodity ETF?

Real assets for real profits

Commodities are one asset class that stands apart from the 'credit crunch' and fraud tainted financial instruments of the corporations. Because commodities are tangible, real world products, the markets in them are more easily understood. A barrel of oil, a bushel of wheat or an ounce of gold can be readily visualized, purchased, held and used, unlike the flimsy paper notions that underlie shares, bonds and credit instruments.

Not only that, but in a world where the masses of China and India are surging into the consumer market, demand for commodities across sectors has continued to bound ahead. The global financial crisis barely dented the long term demand for primary materials, with commodity sector quickly re-establishing its strong growth.

And supply is not infinite. Across the board, commodities are becoming harder to find, more costly to extract, or more risky to grow. Oil is approaching its peak; rare earth elements are becoming, well, rarer; and softs, such as wheat, are a developing world food crisis, spun out from the storm of a changing climate. If you combine a long term decline in availability of many commodities, with an increasingly frenetic demand, you can see the potential for rising commodity spot prices.

Are ETFs the best vehicle for your investment journey?

For investors, the question then becomes- how can I participate in this strong growth, with a minimum of risk and cost? Commodity Exchange Traded Funds offer a great solution here. These investment funds trade like stocks on the world stock exchanges, but don't pay dividends or offer other return inducements. Instead, investors buy, or sell shares in the ETF, to gain exposure to particular sectors, and benefit from profit opportunities as the price rises and falls - shorting of ETFs is allowed, as is the writing of options on them.

Commodity Exchange Traded Funds are similar to unit investment trust or mutual funds, in that they allow investors to purchase shares that are tied to the net asset value of the fund. However, the ETF prices, and trading in them, are available throughout the trading day, which isn't the case with conventional mutual funds. Also, unlike mutuals, where capital gains are attributed to all share holders as they occur, holders of Commodity Exchange Traded Funds only make capital gains when they profitably dispose of their holdings. This adds tax efficiency to the advantages of flexibility and performance- so maybe now is the time for you to make your move into some of the best commodity ETFs.