Commodities

At the start of 2006, the commodities market looked like it was facing a defining year. Prices spent most of 2005 and the early part of last year basking at or near record highs, long-only investors - and in particular, pension funds - were falling over themselves to enter the market via index investments, and banks were shifting established traders to breathe life into their long-neglected commodity operations.

The past six months or so has been a little more sobering. After hitting a high point in May, prices have fallen, in some cases substantially. This is perhaps best illustrated by the copper market. Prices hit record highs of $8,600 a tonne on May 11, before falling by 24% in just five weeks. Copper for three-month delivery on the London Metal Exchange is currently at around $5,640 a tonne.

So how have those relative newcomers to the market, the long-only passive index investors, reacted to the