Sept. 22 (Bloomberg) -- Mark Johnson, whose precious-metals mutual fund topped all rivals over the past decade, is betting gold-company stocks will rise faster than bullion as miners’ profit margins widen. “For every 1 percent move in gold, the stocks should gain 2 to 3 percent,” Johnson, 59, said in a telephone interview from San Antonio, where his USAA Precious Metals and Minerals Fund is based. As gold prices climb, production costs advance more slowly to yield bigger profits, he said. The $1.2 billion fund has about 80 percent of its assets in mining stocks, which it picks based on balance sheets, ability to expand production, political risks and valuation. Johnson, who travels to mines to find details that can’t be found in financial reports, such as whether workers are idle, says gold will rise as the dollar falls and inflation accelerates. Johnson’s fund, up 51 percent this year through Sept. 18, averaged 23 percent returns in the 10 years ended Aug. 31, first in its category and second among all U.S. mutual funds behind ING Russia, data from Chicago-based research firm Morningstar Inc. show. Gold for delivery in December rose to an intraday high of $1,025.80 on Sept. 17, the most since March 2008, and investors are betting the price may rise further. Futures for delivery in December 2013 traded at $1,109.20 yesterday on the Comex division of the New York Mercantile Exchange. Analysts are less bullish, forecasting a drop to $750 by 2013, according to the median of seven estimates compiled by Bloomberg. Drop Seen “The economic fundamentals don’t support what we have been seeing,” Miguel Perez-Santalla, sales vice president at Heraeus Precious Metals Management in New York, said in a telephone interview. The dollar may “firm up” and gold may drop in the coming months because inflation fears are overblown, he said. So far, Johnson’s strategy has paid off. The USAA fund’s total return over the past decade was more than four times that of the gold and silver index, according to data compiled by Bloomberg. The Philadelphia Stock Exchange Gold and Silver Index of 16 mining companies surged 34 percent this year, compared with a 14 percent increase for the metal. “For investors who insist on having exposure to precious- metals stocks, this fund is a great option,” Jonathan Rahbar, a Morningstar fund analyst, wrote in a July note on the company’s Web site. He attributed the fund’s gain over the metal to savvy stock-picking. USAA Precious Metals, which was started in 1984, raised its stake last year in Centerra Gold Inc., a Toronto company with a mining project in the Kyrgyz Republic, the Central Asian country Johnson called politically risky. Politically Risky Centerra soared 62 percent this year. The company, which represented 1.1 percent of the fund as of May 31, reached a settlement with the Kyrgyz government in April over legal disputes threatening the project. Agnico-Eagle Mines Ltd., the fund’s largest holding at 5.1 percent of the portfolio as of Sept. 10, will benefit from a “very steep growth profile,” Johnson said. The company’s gold output may grow to 1.2 million ounces in 2010 from an estimated 550,000 to 575,000 this year, Sean Boyd, chief executive officer of Toronto-based Agnico-Eagle, said in an August interview. USAA Precious Metals holds AngloGold Ashanti Ltd., Africa’s largest gold producer, on the belief that Chief Executive Officer Mark Cutifani can “turn around a troubled operation,” Johnson said. AngloGold shares gained 52 percent in 2009. The company represents 5.1 percent of Johnson’s fund. ‘Opposite of Dollar’ Paulson & Co., the hedge-fund firm run by billionaire John Paulson, bought 40 million AngloGold shares in the second quarter, Bloomberg data show, making him the company’s largest shareholder. Johnson declined to offer a specific forecast for gold, saying only the metal would climb as the dollar weakened. The Dollar Index, a six-currency gauge of the greenback’s value, fell 5.6 percent this year. “Gold is the opposite of the dollar,” Johnson said. “It is the ultimate hard currency.” Platinum, the metal used in automobile emissions-control parts, climbed 40 percent this year and may outperform gold over the next few years because of a recovering global economy and the tightening of pollution standards by more countries, Johnson said. Platinum stocks make up about 8 percent of the USAA fund. Johnson, who has worked on the fund since 1994, holds a bachelor’s degree and master’s in business administration from the University of Michigan in Ann Arbor. Dan Denbow, 42, became co-portfolio manager of the fund last year. USAA Investment Management oversees more than $70 billion. To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net.

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