First State: The sector's low correlation to equities as well as bonds helps provide diversification in any investment portfolio. For instance, the correlation coefficient between global resources & global equities is only around 0.3.

Schroders: Commodities have historically had a low correlation with equities, bonds and other assets. Adding them to portfolios will reduce the overall portfolio risks and volatility. Furthermore, in today's inflationary environment, investing in commodities can help protect investors against rising inflation, providing a good hedge in an investment portfolio.

DeAM: Commodities have exhibited low historical correlation with most other asset classes, making them good candidates for portfolio diversification.

First State: Prices rose because supply-side fundamentals remain tight for metals and oil. Factors restricting supply growth include shortages of skilled labour and equipment. China will be a major influence on commodities as the nation's increasing urbanisation means greater demand for housing, power and roads, which require raw materials such as metals. We are positive on the medium- to long-term outlook for the sector.

Schroders: Our view is that the price increases have been driven by fundamentals. In the case of rice for example, what has driven the sharp increase in prices is in fact increased demand and falling supply, in addition to government action to ban exports on rice in some countries. Furthermore, rice is not an actively traded commodity; hence there is barely any room for speculation.

Development and growth of emerging countries, such as China, has resulted in a substantial increase in demand for commodities, while global demand for commodities remains strong. On the supply side, under-investment by commodity suppliers on infrastructure, exploration, research and development has led to depleted stocks of some commodities. We believe that this combination of increasing demand and constrained supply will continue to provide support for the commodities sector going forward.

DeAM: While we do not discount the role of speculators in the appreciation of commodity prices, we believe the increase has been driven mainly by fundamental market factors; rising demand and supply constraints are characteristics in many key commodities.

We continue to be positive on the long-term outlook; bull markets in commodities can last a long time. Historically, commodity cycles have lasted 18 years. Using commodities to contribute to a portfolio has helped counteract the effects of stock market volatility. Although commodities can be volatile, we believe their lengthy historical cycles are an indication that commodities are currently on an upward trend.

First State: Oil prices rose on concern that supply won't meet demand after attacks were made to production facilities in Nigeria. We do not speculate on the direction of commodity prices and prediction of commodity prices is something we avoid. Short-term supply and demand can swing either way on unpredictable events.

Schroders: In recent years, there has been a sharp increase in demand for oil, particularly in some non-OECD countries, while inventories have struggled to keep up with this relentless demand. In addition, very few oil fields are being discovered and the existing oil fields are depleting fast. Progress on alternative energy sources have also been slow, adding on to pressures on prices. In our opinion, these should continue to provide support for oil prices over the short and long term.

DeAM: Put simply, oil prices are up on much higher demand with little supply response. Spare capacity has gone from over 2 million barrels a day to less than 1 million barrels a day. Critical mass economies like China and India have substantially increased demand. International Energy Agency statistics and Deutsche Bank estimates show that during the 20 year period ending in 2010, China and India's daily oil demand would have grown by 7 per cent and 5 per cent respectively. This compares to about 1 per cent oil demand growth in the U.S. during the same period.

Meanwhile, supply has gone through a material shift toward national oil companies (NOC), and away from integrated oil companies (IOC). This shift from IOC to NOC has prevented capital from flowing into the oil space that normally would be attracted by higher oil prices. Consequently, the major oil companies (IOCs) are struggling to replace the oil they produce. National oil companies like that of Mexico and Venezuela have experienced steep declines in output over the past few years. Punitive taxation and a lack of legal transparency have worked to slow oil output in Russia.

Over the next two years, it looks as though Russia's daily output would be slightly less than what it was in 1990. Saudi Arabia is growing their crude oil production by 2 per cent per year, but infrastructure investment in the Middle East is causing a substantial amount of that incremental production to be absorbed at rates similar to those of China and India.

While we do not ascribe to a peak oil outlook, we continue to believe that the cost of extracting oil will continue to rise. Demand for oil, especially in the emerging market economies, has been sustained through government subsidies and a weak U.S. dollar. Until either of these change materially, we believe in the long-term, the price of oil will stay well above its current marginal cost of production, which we believe ranges between US$70 and US$80 per barrel. We believe that at US$130 per barrel, we're much closer to demand destruction and therefore are more cautious on oil prices at this point.

First State: We are unable to comment as we do not invest in agricultural commodities.

Schroders: We believe that we are in the early stages of an extended bull market for commodities in general. Historically bull markets for commodities have lasted for 20 years.

Our view is that the current commodity bull cycle is here to stay and for agricultural commodities, we are in the early stages of this cycle. Increased demand particularly from developing countries and constrained supply from weather disruptions and environmental controls, which are slowing new productions coming upstream, should continue to support the run in agricultural commodities.

DeAM: We believe that agricultural commodities will continue to perform well, based on a growing global population, growing affluence and increased urbanisation.

The United Nations estimates global population will grow to 9.3 billion by 2050, from 6.3 billion in 2004. As incomes rise, particularly in the world's most populous countries in Asia, higher protein foods will be consumed. Meat, especially beef, is the most resource-costly form of food. It takes 100 times more water to produce a pound of beef than a pound of wheat^. Simultaneously, we are seeing a rise in demand for higher quality and organic foods in developing markets.

Unplanned urbanisation, increasing pollution and the effects of global warming are putting tremendous pressure on our resources such as water, energy, biological assets and arable land. Currently, arable land is being lost at 30-35 times the historical rate*.

First State: Gold prices fell amid a return of investor demand for equities and a stronger U.S. dollar. We are unable to comment on the direction of prices.

Schroders: We believe prices of precious metals will increase further, backed by increased demand and constrained supply.

Prices of precious metals are driven by slightly different demand-supply factors from commodities in general. For gold in particular, investment demand has been a key driving force. This comes in two forms: demand from central banks in countries like Russia and China, as well as investors who are worried about inflation, the falling dollar and a recession. On the other hand, supply for gold has been falling. Last year, we saw the lowest gold production in South Africa since 1931 and the lowest gold production globally since 1937. Although massive efforts have been put in on discovery of new gold, the rate of discovery has been low. Altogether, these have driven prices upwards and we expect the trend to continue.

DeAM: We believe the multi-year uptrend and drivers for gold remain in-place. The broad outlook in 2008 is for gold to continue to consolidate in an US$850-950/oz range during the northern summer before working higher, possibly back over US$1,000/oz. We believe inflation remains a key global financial risk and gold will perform well as an inflation hedge. The easing of interest rates in key markets such as the U.S. and Europe to battle the credit crisis has only served to elevate inflation problems. In physical markets, we expect investment demand to stay strong and jewellery demand is expected to adjust to higher prices as it has done for each major up-leg in the past five years.

For Platinum, markets remain firm with prices underpinned by South African supply side problems and forecasts of a continuing supply deficit.

First State: The U.S. contribution to China's economic growth has diminished in recent years. Both the European Union and emerging market economies have become larger importers of Chinese goods. China's large fiscal surplus and monetary reserves give its policy makers the option to increase government spending to stimulate the domestic economy. This is supportive of the mining and energy sectors over the medium term.

Schroders: Demand for commodities is primarily coming from developing countries. In the case of base metals, the U.S. is not a major user, consuming only 11 per cent of the world's copper for instance. China, on the other hand, uses 26 per cent of the world's copper in 2007 and this secular demand story will remain. Our research suggests that domestic demand in China is evidenced by high current rates of urban infrastructure investment and fixed investment in non-ferrous metals manufacturing.

In the case of refined metals, the Chinese authorities have even implemented export taxes to discourage exports to retain the metals for domestic consumption. In addition, emerging economies are planning to spend huge amounts on infrastructure developments over the next 10 years and these would very much increase the requirement for base metals.

On the supply side, inventory counts have also been low and we expect a slow down of new supply coming on stream over the next 5 years.

The above demand and supply factors should continue to put upward pressure on prices, even if the U.S. slips into a recession or if China's economy slows down sharply.

DeAM: Even if the U.S. slips into a recession or if the Chinese economy slows sharply (which we do not anticipate), demand for base metal prices will continue to be strong versus historical trends. The fact that the rally in commodity prices has continued in the midst of the current U.S. economic slowdown highlights the structural - rather than cyclical - nature of the upward move.

Constrained supply, strong demand, low inventories, industry consolidation and higher production costs underpin metals, energy and agricultural commodity prices. Of course, there will be an impact on the rate of appreciation of commodity prices in the event of a cyclical slowdown but we believe that the longer-term trend remains intact.

First State: Commodity prices, especially base metals, are volatile because of investment fund trading activity. Fundamentals may not have changed. We maintain our investment philosophy of not speculating on the short-term direction of commodity prices. Our focus is investing in companies that are able to deliver growth at low costs. This will deliver excess returns over the full commodity price cycle.

Schroders: We believe that strong fundamentals in the commodities market and increasing demand coupled by constrained supply are the drivers of upward trending prices. The weakening U.S. dollar played its part only by making imports cheaper, which accelerated the price increase but it did not cause the increase.

Furthermore, we expect the dollar to continue falling in value. Hence, in our view, the greenback regaining its lustre is not a risk to be wary of for now.

DeAM: We do not believe the U.S. dollar is a key driver of oil prices as evidenced by the low correlation between the U.S. dollar and oil prices over the long term, as well as the recent sharp rise in oil prices amid U.S. dollar strength. That said U.S. dollar weakness and end product (i.e., gasoline, diesel, fuel oil, etc.) price subsidisation have a similar impact on crude oil demand. If the U.S. dollar is weak, the price of end products is lower. This underpins demand. If the U.S. dollar strengthens, the reverse would be true over time.

First State: The sector remains volatile and has a tendency to be driven to some extent by short-term factors such as investor risk appetite and the need for liquidity. It is important to focus on the sector's long term underlying demand growth.

Over the long term, commodity prices are likely to fall with technological improvements. For example, trucks could get bigger, mining equipment become more efficient and companies are able to drill deeper wells and improve extraction techniques, all of which will lower the cost of production.

The profit margin is more important than pure commodity prices and it should not concern any investor that prices fall in the long run due to continuing technological advances. Our investment philosophy is to invest in low-cost producers with quality assets and growing output. This will deliver excess returns over the full commodity price cycle.

Schroders: In the short term, risks such as war, political uncertainty, climate change and natural disasters are positive for commodity prices and negative for all financial assets. In the longer term, however, a prolonged global recession and increased volatility in the market would be something that investors have to be wary of.

To mitigate this, fund managers employ rigorous risk controls with strict limits on the maximum exposure to any commodity as well as sector, instrument and cash limits.

DeAM: Commodities are a volatile asset class. In fact, commodities and equities have similar - albeit uncorrelated - long-term return and volatility characteristics. As the secular commodity story unfolds, investment flows will magnify short-term moves, both upward and downward. Given the volatility inherent in commodities as an asset class, the best way for investors to gain access to commodities is through a broad-based, actively managed approach.