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3 Real Estate Mutual Funds Poised for Construction Spending
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The recent increase in construction spending on single-family housing in the United States, not only demonstrates the strength of the economy but also presents an exciting opportunity in real estate mutual funds. As construction picks up pace and mortgage rates decline, it creates a favorable environment for real estate investments.
According to data released by the Commerce Department, construction spending rose by 0.9% in December, surpassing the consensus-estimated 0.5%. This growth was primarily driven by a rise of 1.4% in spending on single-family homebuilding. The demand for construction remains high due to a shortage of pre-owned homes, which is further fueled by lower borrowing costs. These factors bode well for the housing market's outlook.
The recent decision by the Federal Reserve to keep interest rates high highlights the trend in the real estate market. According to Fed Chair Jerome Powell, interest rates have reached their peak and are expected to decrease in March. This news is likely to encourage homebuyers and stimulate the demand for construction.
Declining mortgage rates, with the 30-year fixed rate mortgage hovering around the mid-6 % range after reaching a 23-year high of 7.79% in late October, are expected to further contribute to the growth of the housing market. Lower borrowing costs make owning a home more affordable, prompting individuals to take advantage of this opportunity and enter into homeownership, thereby increasing demand for houses.
Considering factors such as increased construction spending, favorable macroeconomic conditions and decreasing mortgage rates, real estate mutual funds are expected to bode well in this current environment.
Nonetheless, investing in real estate mutual funds seems to be judicious as of now. Also, mutual funds, in general, diversify portfolios without several commission charges that are mainly associated with stock purchases and trim transaction costs (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have, thus, chosen three real estate mutual funds that investors should buy now for the long term. These funds possess a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and expense ratios considerably lower than the category average. So, these funds have provided a comparatively strong performance along with lower fees.
T. Rowe Price Real Estate Fund (TRREX - Free Report) seeks long-term growth through a combination of capital appreciation and current income. It generally invests most of its assets in equity securities of real estate companies and foreign securities.
Gregg Korondi has been the lead manager of TRREX since Jan 1, 2024. Most of the fund's holdings were in companies like Prologis, Inc. (7.7%), Equinix, Inc. (7.1%) and American Tower Corporation. (6.5%) as of Sep 30, 2023.
TRREX's 3-year and 5-year annualized returns are 7.3% and 6%, respectively. TRREX has a Zacks Mutual Fund Rank #1. Its net expense ratio is 0.86%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Manning & Napier Real Estate Fund (MNREX - Free Report) invests the majority of its assets in securities of companies that are engaged in the real estate industry.
Joseph R. Rydzynski has been the lead manager of MNREXsince Dec 31, 2015. Most of the fund's holdings were in companies like Equinix, Inc. (12.5%), Prologis, Inc. (11.5%) and Public Storage (7%) as of Sep 30, 2023.
MNREX's 3-year and 5-year annualized returns are 5% and 7%, respectively. MNREXhas a Zacks Mutual Fund Rank #1. Its net expense ratio is 1.10%.
DWS RREEF Real Estate Securities Fund (RRRAX - Free Report) seeks long-term capital appreciation and current income. RRRAX invests the majority of its net assets in equity securities of real estate investment trusts and real estate companies.
John W. Vojticek has been the lead manager of RRRAX since Sep 30, 2004. Most of the fund's holdings were in companies like Prologis, Inc. (10.5%), American Tower Corp (8.8%) and Equinix, Inc. (7.3%) as of Sep 30, 2023.
RRRAX's 3-year and 5-year annualized returns are 4.9% and 7.1%, respectively. RRRAX has a Zacks Mutual Fund Rank #1. Its net expense ratio is 1%.
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3 Real Estate Mutual Funds Poised for Construction Spending
The recent increase in construction spending on single-family housing in the United States, not only demonstrates the strength of the economy but also presents an exciting opportunity in real estate mutual funds. As construction picks up pace and mortgage rates decline, it creates a favorable environment for real estate investments.
According to data released by the Commerce Department, construction spending rose by 0.9% in December, surpassing the consensus-estimated 0.5%. This growth was primarily driven by a rise of 1.4% in spending on single-family homebuilding. The demand for construction remains high due to a shortage of pre-owned homes, which is further fueled by lower borrowing costs. These factors bode well for the housing market's outlook.
The recent decision by the Federal Reserve to keep interest rates high highlights the trend in the real estate market. According to Fed Chair Jerome Powell, interest rates have reached their peak and are expected to decrease in March. This news is likely to encourage homebuyers and stimulate the demand for construction.
Declining mortgage rates, with the 30-year fixed rate mortgage hovering around the mid-6 % range after reaching a 23-year high of 7.79% in late October, are expected to further contribute to the growth of the housing market. Lower borrowing costs make owning a home more affordable, prompting individuals to take advantage of this opportunity and enter into homeownership, thereby increasing demand for houses.
Considering factors such as increased construction spending, favorable macroeconomic conditions and decreasing mortgage rates, real estate mutual funds are expected to bode well in this current environment.
Nonetheless, investing in real estate mutual funds seems to be judicious as of now. Also, mutual funds, in general, diversify portfolios without several commission charges that are mainly associated with stock purchases and trim transaction costs (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have, thus, chosen three real estate mutual funds that investors should buy now for the long term. These funds possess a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and expense ratios considerably lower than the category average. So, these funds have provided a comparatively strong performance along with lower fees.
T. Rowe Price Real Estate Fund (TRREX - Free Report) seeks long-term growth through a combination of capital appreciation and current income. It generally invests most of its assets in equity securities of real estate companies and foreign securities.
Gregg Korondi has been the lead manager of TRREX since Jan 1, 2024. Most of the fund's holdings were in companies like Prologis, Inc. (7.7%), Equinix, Inc. (7.1%) and American Tower Corporation. (6.5%) as of Sep 30, 2023.
TRREX's 3-year and 5-year annualized returns are 7.3% and 6%, respectively. TRREX has a Zacks Mutual Fund Rank #1. Its net expense ratio is 0.86%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Manning & Napier Real Estate Fund (MNREX - Free Report) invests the majority of its assets in securities of companies that are engaged in the real estate industry.
Joseph R. Rydzynski has been the lead manager of MNREXsince Dec 31, 2015. Most of the fund's holdings were in companies like Equinix, Inc. (12.5%), Prologis, Inc. (11.5%) and Public Storage (7%) as of Sep 30, 2023.
MNREX's 3-year and 5-year annualized returns are 5% and 7%, respectively. MNREXhas a Zacks Mutual Fund Rank #1. Its net expense ratio is 1.10%.
DWS RREEF Real Estate Securities Fund (RRRAX - Free Report) seeks long-term capital appreciation and current income. RRRAX invests the majority of its net assets in equity securities of real estate investment trusts and real estate companies.
John W. Vojticek has been the lead manager of RRRAX since Sep 30, 2004. Most of the fund's holdings were in companies like Prologis, Inc. (10.5%), American Tower Corp (8.8%) and Equinix, Inc. (7.3%) as of Sep 30, 2023.
RRRAX's 3-year and 5-year annualized returns are 4.9% and 7.1%, respectively. RRRAX has a Zacks Mutual Fund Rank #1. Its net expense ratio is 1%.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>