The commodity cycle is far from over according to RCM. Despite price falls in oil and other asset classes during recent weeks chief executive officer for Asia-Pacific Mark Konyn believes the asset class, and oil in particular, is likely to continue to be a profitable area of investment because of a stark supply/demand imbalance.

Despite oil dropping to its lowest level for six months in the middle of last week, Konyn believes this is far from the end of its super-cycle. At the same time a supply and demand imbalance is likely to continue, and RCM is not looking to invest in companies that are facilitating the rectification of the supply gap.

ôIn the past the big problem has been oil companies have invested massively in infrastructure,ö he says. ôBut in this cycle companies have tended to under-invest or invest at a more measured pace than before as demand has picked up.

ôCompanies are not able to invest enough to reduce the demand for oil and the market is not likely to become more balanced for at least 18 months so oil company cash flow is likely to remain very strong.ö As a result RCM is maintaining a high level of commodity exposure, with its balanced fund showing a 7.8% tilt compared to 7.2% six months ago in energy stocks.

In other asset classes, Konyn believes, asset managers should be prepared for a decline in earnings and, he adds, this is likely to mean investors are likely to have to temper their return expectations in the next year.

ôThe difference between good fund managers and the not so good are likely to become more apparent and this means investment houses are going to have more conviction in their key holdings,ö he explains. ôInvestment returns are likely to fall as a result and we expect around 8% or 9% from our balanced funds in 2007, compared to 12.7% in the year to date, which is not a bad result.ö

A shallower pool of returns, according to Konyn, will lead to greater emphasis on stock picking and proprietary stock research.