The managers focus on industries where there are notable differences between the companies' costs of production and their geological assets. These differences produce a "steep cost curve" in industries such as oil, gold, copper and coal that can have a huge impact on profitability.

"Let's say you have a gold mine that's essentially a big open pit with easy access to high-grade gold," Davis explains. "That project is going to require a limited amount of capital to extract gold from the ground. At the other end of the spectrum, you've got a project with a mine that's a mile under the surface and a lower grade of gold. That capital-intensive producer is going to require much higher gold prices to be profitable."

The same pattern holds true in the oil industry. "A lot of oil companies require prices of at least $70 a barrel to break even," says Settles. "The low-cost producers we own only require $40 a barrel pricing to do that."

The cost structures are different for those companies in steel, aluminum and zinc production. Their flatter cost curves make clear winners harder to see, so the fund's managers usually don't find these stocks attractive.

Davis points to fund holding Goldcorp, which owns large mines in Mexico, Chile and Canada, as an advantaged producer with an efficient cost structure, good management and attractive assets. "Goldcorp would be cash-flow positive even in an environment of $400 an ounce gold, and it can easily do well in a $600-an-ounce environment," he says. He adds that the stock has appreciated at an annualized rate of nearly 30% over the last decade, outstripping 14% for the price of gold.

Another longtime fund holding is natural gas producer Southwestern Energy, which owns highly productive drilling sites such as the Fayetteville Shale in Arkansas, where it acquired drilling leases in 2002 after the discovery of gas-bearing deposits. "This is almost a paragon of the kind of company we're looking for," says Davis. "Southwestern is sitting on a large inventory of wells, and its low production costs will allow it to generate an attractive rate of return even if gas prices remain low."

Certain commodities, such as crushed rock and salt, don't trade on futures exchanges, so they tend to be less sensitive to the economy than those that do. Stocks tied to these commodities thus offer an important element of diversification, and RS Global Natural Resources has about one-third of its assets in them.

For example, Canadian salt miner Compass Minerals International sees its business heat up when the weather is cold and demand for road salt increases. "Salt prices have risen 3% to 4% annually over the last few years, so this is a great hedge against inflation," observes Settles. "Compass owns the largest salt mine in the world. And because the salt body is unusually thick, the company has a huge mining cost advantage."

The salt mine's location near Lake Huron means Compass can transport the mineral on barges or ships, which cost less than the trucks that the company's inland competitors rely on. With commodities that are relatively plentiful, such as salt or iron ore, low-cost transportation can give a company a major edge over its competitors.

Because commodity sectors only accommodate narrow groups of advantaged producers, the fund's holdings are smaller-with only about 30 securities, about half the number populating the typical natural resource fund. Settles says too much diversification can cramp performance in this space.