Rising labor costs and surging raw material prices have been slowing down spending but the construction sector is still going strong. Spending on construction once again increased in May, indicating that the economy is still on solid ground.

Spending on construction projects was once again driven by a strong outlay on residential projects, which has been the case for the past several months. Thus, funds like T. Rowe Price Global Real Estate Fund (TRGRX Quick QuoteTRGRX - Free Report) , GuideStone Funds Global Real Estate Securities Fund Investor Class (GREZX Quick QuoteGREZX - Free Report) and Northern Multi-Manager Global Real Estate Fund (NMMGX Quick QuoteNMMGX - Free Report) are likely to benefit in the near term.

Construction Spending Soars

The U.S. Census Bureau said on Jun 1 that construction spending rose 0.2% in April at a seasonally adjusted annual rate of $1,744.8 billion, above the revised March rate of $1,740.6 billion. On a year-over-year basis, construction spending jumped 12.3% in April from last year’s estimate of $1,553.5 billion.

Construction spending is being primarily driven by investments in private residential projects for quite some time now. It wasn’t any different in April. Spending on private residential construction projects jumped 0.9% to $891.5 billion in April on a month-over-month basis. Overall spending on private construction rose 0.5% to $1,394.7 billion at a seasonally adjusted annual rate.

Spending on non-residential construction projects rose 0.2% in April to $350.1 billion. The report also said that for the first four months of the year, overall construction spending rose 12.4% to $520.8 billion on a year-over-year basis.

Homebuilding has been a bright spot in the construction sector as demand for single-family homes continues to rise. Rising labor costs, soaring raw material prices and higher rates have been making things difficult for both homebuilders and buyers. However, a lot is being spent on residential projects, which has been helping the sector.

As a result, we've chosen three such funds from the real estate sector that are worth buying. Moreover, these funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Our Picks

T. Rowe Price Global Real Estate Fund seeks appreciation of capital and current income over the long term. TRGRX primarily invests its assets (including any borrowings for investing purposes) in equity securities of real estate businesses around the world, including those in the United States. T. Rowe Price Global Real Estate Fund is a non-diversified fund.

T. Rowe Price Global Real Estate Fund has a 3-year and 5-year annualized return of 6.7% and 6.2%, respectively. The annual expense ratio of 0.95% is lower than the category average of 1.21%. TRGRX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

GuideStone Funds Global Real Estate Securities Fund Investor Class seeks appreciation of capital and current income over the long term. GREZX primarily invests its assets (including any borrowings for investing purposes) in equity securities of real estate investment trusts ("REITs") and other real estate-related companies.

GuideStone Funds Global Real Estate Securities Fund Investor Class has a 3-year and 5-year annualized return of 7% and 7.3%, respectively. The annual expense ratio of 1.14% is lower than the category average of 1.21%. GREZX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Northern Multi-Manager Global Real Estate Fund aims for long-term capital growth and current income. NMMGX invests the majority of its assets in equity securities of real estate companies and those related to the real estate industry. Northern Multi-Manager Global Real Estate Fund may invest in securities of companies around the world.

Northern Multi-Manager Global Real Estate Fund has a 3-year and 5-year annualized return of 6.4% and 6.6%, respectively. The annual expense ratio of 0.92% is lower than the category average of 1.21%. NMMGX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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