Gold, Silver to Extend Gains, Cuggino Says

NEW YORK (TheStreet) -- Gold, silver and real estate investment trusts are poised to extend gains this year as economic growth strengthens, said Michael Cuggino, manager of the Permanent Portfolio Fund (PRPFX).

The $10.3 billion mutual fund, which garners a full five stars from research firm Morningstar ( MORN), has returned 15% over the past year, better than 98% of its peers. Over the past five years, the fund has returned an average of 9.6% annually, outperforming 99% over its Morningstar rivals.

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.

What is your economic outlook for 2011?

Cuggino: U.S. economic growth is getting stronger. We are seeing signs of that in a lot of data. Unemployment remains high, but I expect that to stabilize and eventually come down. I expect corporate profits to remain strong and I think fourth-quarter earnings will provide a good underpinning for stock prices going forward.

What is your outlook for gold in the coming year?

Cuggino: The macro-monetary environment for gold leads us to think we will see continued higher prices, with higher highs and higher lows. But we think there will be a lot of volatility along the way after the metal's big run-up last year. If you look at the monetary-supply issues out there and the liquidity being created around the world, it's most likely going to drive gold higher, even if it's a choppy ride.

Silver outperformed gold in 2010. What is your expectation for 2011?

Cuggino: Silver has some of the properties of gold in terms of being a store of value, but it's also an industrial metal. And with economic activity improving and investor demand increasing, supply is being constrained. So I see a continued move higher in silver as well. As to which metal will be the better performer, it does not make too much of a difference to us in the end because we own both.

Real estate investment trusts, or REITs, had a fantastic 2010, impressing even their harshest skeptics. What is your forecast for this area of the economy?

Cuggino: REITs are nicely leveraged to economic activity. A growing economy tends to result in higher rents. So we like REITs across a number of real estate sectors. We think warehousing and industrial REITs will be strong, as well as office REITs as vacancies decline. Some of the names we own in the fund are ProLogis ( PLD) and Boston Properties ( BXP). Names like these will fare well in the coming year.

Why is Illinois Tool Works (ITW) one of your favorite industrial stocks?

Cuggino: Many people may consider it a boring choice considering the products they make, but it's a fantastically run company. They are very good at growing organically as well as through strategic M&A. If you believe in the worldwide growth story, then Illinois Tool is a good industrial company to own. It's got a healthy dividend yield as well.

-- Reported by Gregg Greenberg in New York.

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