Q The recent surge in oil prices has grabbed my interest for investing in oil and other commodities, such as copper and platinum. I have heard about trading in futures and options but would prefer to invest through a fund that tracks the price of the commodity over three to five years. I would also like to protect my capital at maturity should there be a reverse in the current growth experienced. What should my position be?

A Commodity investing is a very hot topic, with the price of US crude oil reaching $55 a barrel at the time of writing. It is quite natural in such 'bull times' for investors to jump on the bandwagon and look for investment opportunities as prices soar. Are we now seeing the peak of commodity prices or is the bull run only just beginning?

After making the necessary adjustments for inflation, the reality is that commodities are in fact priced at a near all-time low. If this is the case, then it is natural to assume that prices still have a good opportunity of rising further.

A major factor that will determine the short and longer-term prospects for commodity prices is the demand from China. The Chinese community is now the world's second largest importer of oil and the world's biggest importer of aluminium. This demand for commodities is expected to increase year on year and, if demand is increasing, so will the price.

Interestingly, coal is coming back into the spotlight. With the rising price of oil, the demand for coal as a key energy source is likely to increase. There are huge reserves of coal in the UK, for example, and the share price of some well known mining firms have rocketed over the past year. This commodity should not be overlooked either.

So how can you invest in commodities with an added level of security? There are many investment funds that speculate on the price of oil and other commodities, or you can do so yourself.

There are online brokers that allow you to trade on a variety of commodities, from copper to coffee beans. You must, however, observe the risks of doing so. Although large gains can be made, so can large losses!

For this reason, I would recommend an investment fund that tracks the official price of one or more commodities, i.e. from the metal exchange in the UK. There are funds that invest across various commodities, such as oil, natural gas, lead and copper.

The value of your investment will therefore reflect the increase/decrease of the relevant exchange prices. Rather that just receive the growth, you can expect to receive approximately 150% of the increase over a three- to four-year period.

If the commodity portfolio therefore went up by 20% over the period, you would receive 130% of your capital on maturity. To add protection, there are investment funds that also offer a 100% capital protection after three or four years.

You are therefore able to receive approximately 150% of the increase with the knowledge that your capital is also protected if the investment is held to maturity.

Commodities should form part of most investment portfolios and investing in this way, with added capital protection, can be done from as little as Lm10,000.

Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2137-8627/9984-2614 (office hours) or e-mail mhollingsworth@waldonet. net.mt.

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Malta exchange control regulations must be observed. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.