Two finance professors have planted a bomb under one of Wall Street's most sensational investment stories.

Their target: limited partnerships that invest in commodities, a $900 million business that lately has been soaring on evidence of increased inflation. There are now about 110 public commodity funds (also known as futures funds) trading metals, agricultural products, foreign currencies and U.S financial futures. Typically, it costs no more than $2,000 to $5,000 to buy in.

As the salespeople explain it, these funds are an ideal hedge against inflation.

But that happy assumption has just had a huge hole blasted in it by spoilsports Edwin Elton and Martin Gruber of New York University. They studied the performance of all public commodity funds from July 1979, which is roughly when the business started to grow, to July 1985 -- and declared them a bust.

Over that period, investors in the public funds lost money at an annual rate of minus 0.8 percent. By contrast, the S&P 500 rose 16.9 percent. The Shearson Bond Index rose 12.3 percent.

The professors found two worms in the apple:

Costly mistakes. Portfolio managers don't buy commodities and hold them. They trade furiously in the markets, trying to catch quick changes in trends, and they're often wrong. Gruber found no evidence that commodity funds move with the consumer price index. Some months they track the index, other months they don't.

Kleptomaniacal fees. Counting management fees, performance fees and brokerage commissions, investors in the average commodity fund paid around 19 percent a year to have their money managed, as opposed to around 1 percent in stock or bond mutual funds. You might also pay a sales charge of 2 percent to 7 percent.

Even when a manager rides the price trends right, the manager's costs can leave dollars sticking to his or her (and the broker's) fingers instead of yours.

In various periods, some funds do show sensational gains. But a manager's performance this year says almost nothing about how he or she will do next year.

Naturally, the industry isn't taking this insult lying down. Morton Baratz, who tracks commodity funds in his newsletter, Managed Account Reports, agrees that the funds don't hedge inflation. But he argues that, of about 600 active managers, maybe 20 or 30 will predictably do well for their investors over the long term.

Among the funds with better advisers and open for investment, he lists Chartwell Partners (traded by the Fairfield Financial Group), Commonwealth International (Hickey Financial Services), Cornerstone Fund III (Cresta Commodity, Sunrise Commodities and Computerized Commodity Advisory), Cornerstone IV (John W. Henry and Sunrise) and Systemtrend Ltd. (Richard J. Dennis, Orion and Tudor Investment). But let me state for the record that this paragraph does not come with a guarantee.

When you read the prospectus of a new commodities fund, the advisers' records always look sensational. A cynical Gruber thinks that the game is rigged. Sponsors, he believes, may take a manager who is currently showing good returns in his private accounts and construct a public fund around him. But the fund's performance won't be anything like that shown in the sales brochure.

This question arises with funds like Shearson Lehman's new Select Advisors Futures Fund, to be run by 11 different managers. Their past performance, with private money, is shown as a compounded 43 percent over the past six years.

Now look at the records of the 10 other public funds sold by Shearson. From 1983 to 1986, six of them were losers, one dropping so much that it folded. All but one of the surviving Shearson funds darted ahead during the first seven months of 1987, showing only that you can be a big winner in one time period and a big loser in another.

Hold it! Out of the Midwest gallops another professor -- Scott Irwin of Ohio State University -- to argue that although these funds may be bad, they're not impossible.

He agrees that the expenses amount to highway robbery. But, contrary to Gruber, he'd bet on them during a strong inflationary trend -- if you had enough money to own a broad selection of the funds, picked the ones with lower costs, intended to hold for the long term and can live with a drop of 50 percent in a bad year.

Otherwise, save your money by staying awa