Exchange-traded products have opened up commodities to a much wider group of investors, but the industry remains divided over whether they are contributing to a bubble that could destabilise the wider market.

World food prices have reached a new high, according to the UN's Food and Agriculture Organization, and other commodity prices are trending upwards. At the same time, research by Barclays Capital shows total institutional and retail commodities assets under management hit $376bn at the end of 2010, up $100bn on a year earlier, including medium-term notes and commodity index swaps. Just under half of that is held in exchange-traded products, with estimates ranging from $155bn, according to Barclays Capital, to $185bn, according to BlackRock. Michael John Lytle, managing director of ETP provider Source, said: "Ten years ago, the only people trading commodities were specialists. Many multi-asset class investors have now come to the conclusion they should have 5% to 10% of their portfolio in commodities." The biggest commodity exchange-traded funds, such as the United States Natural Gas Fund, buy futures contracts on the commodity exchanges to back up each dollar invested in their fund. These large transactions have started to create short-term shockwaves on commodities exchanges and have drawn the attention of industry watchdogs. Regulators have taken a close look at exchange-traded products of every shape and size, including exchange-traded funds, exchange-traded commodities and exchange-traded notes, to determine whether they could be responsible for manipulation and increased volatility in the commodities sector. Last December, the US Commodity Futures Trading Commission proposed position limits for futures and options in major energy markets to try to reduce speculation. The move has already curtailed the commodity holdings of several large funds. The European Commission has also said it intends to rein in commodity speculation, although little detail has emerged on this to date.