Commodities such as coffee, wheat and copper can form a staple part of many portfolios, as they offer diversification and, as the JP Morgan study showed, have a low correlation to shares. There are several ways to get exposure, one of the most popular being exchange-traded commodities (ETCs), which you can buy through stockbrokers or online share dealers. However, be aware that many have seen their prices rise sharply - it's now a question of whether the rallies can be sustained.
Opt for a fund Investing in a unit trust or investment trust is a straightforward way to get exposure to commodities. It is why it may make sense to opt for a general fund. Remember that emerging markets funds will already be heavily exposed to the commodity sector; you do not want to be overexposed to the sector, so think twice before taking the plunge if you already have exposure to emerging markets. If you do opt for a commodity fund, financial advisers tend to suggest JP Morgan Natural Resources, which has been a huge success - in terms of both performance and attracting investors.
They also like BlackRock Gold & General, which invests in gold-related companies (not actual bullion), while BlackRock's World Mining fund is another fund touted by advisers. Several fund groups are beginning to promote agriculture. One of the best performers is Allianz RCM Global Agricultural Trends, while Sarasin's AgriSar is tipped by Hargreaves Lansdown as a decent fund for a first-time commodity investor.
But commodities are volatile beasts - just ask investors who piled into oil stocks as crude marched towards $147 a barrel in 2008, only to come down with a jolt as the price plummeted to $60.
"Everyone is buying mining and commodities and many fund managers, through no fault of their own, have been left behind," says Mr Dampier. "There is nothing wrong with investing in the areas that have been performing well. The key is to get off in time." "Focus on the long term and buy into any dips in the market"
Among the agriculture stocks listed on the Reuters/Jefferies CRB index that hit a two year high last week, Potash Corp. of Saskatchewan Inc. rose 2.7pc and Monsanto Co. rose 3.3pc.
Besides individual shares, investors can gain exposure to commodities such as coal, oil, gas and copper through exchange-traded funds (ETFs). ETFs are funds that can be traded on the stock market. But many investors looking to carve out some decent returns would be better looking to a fund that will invest in companies connected to commodities.
Philippa Gee, who runs her own wealth management company recommended the First State Global Resources fund, but said that investors should limit their exposure to the sector to 5pc of their portfolio.
Investment adviser Patrick Connolly agreed that investors should ensure they are not overexposed, and recommended a more diversified play in the form of M&G Global Basics.
Mr Dennehy recommends JPMorgan Natural Resources as it is diversified, but stresses that commodities should always be a long term fund.
He said: "In this high risk area I am much more comfortable with actively managed funds, and experienced managers that invest into real businesses, rather than ETFs. Wherever the peak for commodities might end, there will be an ugly fall away from that peak – that is a given.
"What is not clear is how individual ETFs will cope once big US holders start bailing out – expect liquidity problems, and that the smart money will be out before you."
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