(FORTUNE Magazine) – George Roche, 47, is not a native of Baltimore, but he has begun to feel at home after living there for 20 years. He sails Chesapeake Bay and cheers on the Orioles. As portfolio manager of T. Rowe Price's $850 million New Era Fund for almost a decade, he has handily beat Standard & Poor's 500-stock index. According to Lipper Analytical Services, New Era has outperformed the market in both the past ten and the past five years. Unlike the local baseball team, New Era is still winning: It has climbed 12% this year, slightly more than the market. In a recent interview with Fortune's Andrew Serwer, Roche tells how he plans to keep running up the score.

You seem to have the 1980s all figured out. Well, I think it has to do with the nature of New Era. Basically the fund was designed to provide investors with protection against inflation. So we own stocks that are inflation hedges, especially natural resource companies. But we also balance the fund with a measure of growth stocks to keep it moving ahead when inflation is under control.

What's your pleasure these days? Right now 74% of the fund is in natural resource stocks, 18% in growth stocks, and the rest in cash. On average, historically, we have kept 60% in resource stocks, so you can see that we think inflation will be picking up.

Should we be sounding the alarm? No, we look for only a modest increase in the inflation rate, to about 5% by the end of the year and maybe 6% to 7% next year. The size of the increase will depend somewhat on how bad the drought in the Midwest turns out to be. The real upward pressure will come from rising labor costs, which have been greatly restrained over the past several years. And since we are close to production capacity in most industries, prices for basic goods such as paper and chemicals should rise also.

And that leaves which stocks sitting pretty? We own Cyprus Minerals, which digs up a variety of things, including a whole lot of coal. Cyprus is buying copper mines and moving into precious metals. The stock sells for $30 a share, and the company should have per share earnings of $3 to $4 this year. I also like Newmont Mining, which is primarily a gold-mining company now. Newmont is a turnaround story. It restructured while fighting off Boone Pickens, and now appears to be emerging from a heavy debt burden.

So you like gold's glitter? Yes. I think the price of gold could be over $500 an ounce by the end of the year, from its recent level of $450. Newmont and other gold-mining companies have production costs of around $200 an ounce, so you can see what kind of profit these outfits can make.

Conventional wisdom says chemical and paper stocks have already had their run. Why do you own them? That's the big difference between Wall Street and us. I am still willing to own these stocks even though we appear to be late in the business cycle. I think the economy has room to grow. Companies that produce commodity products for the world market are benefiting from the low dollar. These stocks still have a way to go. We like Dow Chemical, which should earn $11 a share this year, up 69% from 1987. Du Pont is also in a strong competitive position right now. In forest products we like Kimberly-Clark. With each share, you get consumer products like Kleenex plus a lot of timberland.

Why own oil stocks? Well, it is the largest natural resource industry by far. Not that we expect the price of oil to rise short term. There is still plenty of excess capacity even if demand picks up. But we do think some companies offer reasonably good values. Our biggest holding is Mobil, an overlooked restructuring story; they finally sold Montgomery Ward. We also own Murphy Oil, a well-managed domestic producer with substantial interest in offshore drilling, which we think will pick up because oil companies believe the price of oil will rise over the longer haul.

Are your railroad stocks on track? Yes. In fact, we would consider increasing our positions in CSX, a laggard stock lately, and Union Pacific, which has made good progress in controlling costs. Railroads haul commodities such as coal, so their fortunes are tied to those basic industries we think will prosper.

What in tarnation is English China Clays all about? Just about what the name says -- it's a British company that produces clay, and it has been doing well lately. The company's clay is used in the paper industry and in chemicals for various manufacturing processes.

Apart from timberland, real estate doesn't seem to turn you on. I do like Rouse, the developer. The stock sells in the low 20s, and we think its assets are worth more than that. Plus the value of its assets continues to grow 20% annually. It's a local company, and we know the people who run it. We think they are outstanding.

Haven't some of your technology stocks let you down? If you mean Digital Equipment and IBM, yes, but hang on. They were great stocks over the past few years, and they are plugged into those big basic industries we think we know something about.