Portfolio managers of gold mutual funds are trying to bolster returns in a bull market by identifying mining stocks that might outperform others, focusing on factors such as production growth and cash flow.

Most tend to be fully invested in mining shares or close to it, rather than bullion, believing this is where there is the greatest potential for further gains.

At Monday's high, the Philadelphia Gold Silver Index was up more than 50% this year, while spot gold was up 30%.

Despite the advance, mining shares still lag behind bullion prices since they are below their 2008 peaks as gold continues to hit fresh record highs, said Caesar Bryan of Gamco Gold Fund. "If gold keeps coming up, these stocks are very inexpensive."

Tocqueville Gold Fund's John Hathaway said his staff continues to study companies, meet with management teams and look for valuation "discrepancies" to capitalize upon.

Mark Johnson, of USAA Precious Metals & Minerals Fund, said his fund aims to perform well on a relative basis regardless of gold's direction. "Consequently, we continue to emphasize low-cost producers with strong management and good balance sheets that have growth profiles and also relatively reasonable valuations," he said.

Some junior miners have good values, Mr. Johnson said, listing Great Basin Gold, Aurizon Mines and Allied Nevada Gold.

He also favors Agnico Eagle Mines, saying its stock was hampered by third-quarter results, but some of this was because of temporary mining issues. For instance, the company was in a low-grade section of one mine, but has moved back into a higher-grade section, he said.

Mr. Johnson also considers Royal Gold an opportunity as a "defensive" stock. It relies upon royalty arrangements, which means it may hold up better on any gold decline due to favorable operating margins, he said.

Mr. Bryan said he favors companies with good cash flow and gold reserves. He hopes that if gold keeps rising, these companies will be in a better position to pay "significant" dividends. "That would differentiate them from exploration stocks and gold bullion, which pays no interest," he said.

Stocks he favors include Gold Fields, Fresnillo, Agnico Eagle, Goldcorp, Newmont Mining and Kinross Gold.

First Eagle Gold Fund's Rachel Benepe said this fund uses a proprietary model that focuses on proven and probable reserves in the ground and the cost of extraction. It seeks shares that might not fully reflect the spot price of gold.

The fund favors some South African mining companies, such as AngloGold Ashanti, Harmony Gold Mining and Gold Fields. Also, Barrick Gold is becoming more favorable as it keeps closing out its hedge book, she added.

Joe Foster, of Van Eck International Investors Gold Fund, seeks companies likely to keep increasing production. "The companies adding value and generating growth are the ones that will command premium multiples," he said.

Mr. Foster likes IAMGold, which he described as a "turnaround story" with growth prospects due to new discoveries and acquisitions. He also likes Red Back Mining due to discoveries in western Africa. "They are making the transition from a junior miner to a mid-tier miner," he said. "Companies that make that transition typically can generate higher multiples."

Growth in production per share is monitored by Frank Holmes, chief executive and chief investment officer with U.S. Global Investors, which runs the Gold & Precious Metals Fund. As a result, he likes Randgold Resources.

Mr. Holmes said he also favors Royal Gold due to its dividends and fact that management owns a portion of the company, and Freeport McMoRan Copper & Gold due to its liquidity and exposure to both copper and gold.

Fidelity Reopens International Small Cap

Fidelity Investments has reopened its Fidelity International Small Cap Fund, which has dwindled in size dramatically over the past four years.

The fund (trading symbol FISMX), which tracks the MSCI EAFE Small Cap Index, was reopened Nov. 9. As of Oct. 31, it had $714 million in assets, down from almost $2.3 billion at the end of 2005. The fund was closed to new investors in May 2005.

Christopher Davis, an analyst at investment-research firm Morningstar Inc., said that a fund's reopening is often the best time to buy, but he wouldn't advise jumping into Fidelity International Small Cap. The fund was launched in 2002 and soared, gaining 80% in 2003 and about 29% in each of the next two years, according to Morningstar. Investors flooded in and it was closed. However, its performance stumbled in 2006, and it produced slightly above-average returns since then, Morningstar said.

The high level of portfolio manager turnover is the primary concern, Mr. Davis said. Wilson Wong has been managing the International Small Cap Fund since July 2005, but Colin Stone and Noriko Takahashi joined the management team only last year.

"There's just a constant flux in management, and only one original manager is still at the helm from its early days when it had very strong performance," said Davis. "Every manager, once aboard, thinks about things differently, which makes it hard for investors to use and to have confidence in the managers. It makes it very unpredictable."

The International Small Cap Fund has gained about 47.7% this year through Friday, lagging the average foreign small/mid-growth fund, which is up 48.3% in the period, according to Morningstar. The Fidelity fund has gained 7.53% over the five years through Friday, while the average among its peers is up 7.55% in the period, Morningstar said.

-Daisy Maxey