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3 Solid Funds to Buy on a Surge in Homebuilder Confidence

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Mortgage rates have been moving north over the past few days as hopes of a rate cut in March by the Federal Reserve dimmed. This was triggered by data, which showed that inflation unexpectedly jumped in January and remained above the Federal Reserve’s 2% target.

The 30-year fixed-rate mortgage was 6.77% on Feb 15, up 13 basis points from a week earlier. Higher mortgage rates lead to higher borrowing costs, which may discourage buyers from purchasing a house. 

Investors’ sentiment was dented after the Commerce Department said that the consumer price index (CPI) jumped 0.3% month over month in January and 3.1% from the year-ago levels. Core CPI, which excludes the volatile energy and food prices, climbed 0.4% sequentially and 3.9% year over year in January.

The Federal Reserve had earlier said that a rate cut is unlikely in March as inflation is still high. The inflation reading now almost rules out the faint possibility.

However, that hasn’t dented homebuilders’ confidence. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose 4 points to hit 48 in February, recording its third straight month of increase. This is also the highest reading since August and above the consensus estimate of 46.

Homebuilder confidence has been rising on hopes that the Federal Reserve will eventually cut interest rates, as it had indicated in late December. The 30-year fixed mortgage rate started declining on these hopes after jumping to 7.79% in October to hit a 23-year high.

It has since been declining as the Federal Reserve halted interest rate hikes and indicated multiple rate cuts in 2024. Markets are now pricing in at least five 25-basis point rate cuts this year, with hopes of the first taking effect in May.

Lower interest rates bode well for the broader economy and will lead to a lower mortgage rate, which will boost the homebuilding market.

3 Best Choices

As a result, we’ve chosen three funds from the real estate sector that are worth buying. 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).

T. Rowe Price Global Real Estate Fund (TRGRX - Free Report)  seeks appreciation of capital and current income over the long term. TRGRX primarily invests its assets (including any borrowings for investment 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 5-year and 10-year annualized return of 0.8% and 1.5%, respectively. TRGRX has an annual expense ratio of 0.95%. T. Rowe Price Global Real Estate Fund 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 Glbl Real Estate (NMMGX - Free Report) 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 Glbl Real Estate fund has a 5-year and 10-year annualized return of 0.3% and 1.4%, respectively. NMMGX’s annual expense ratio is 0.92%. Northern Multi-Manager Glbl Real Estate fund carries a Zacks Mutual Fund Rank #1.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

T. Rowe Price Real Estate (TRREX - Free Report) seeks to provide long-term growth through a combination of capital appreciation and current income. TRREX invests at least 80% of net assets in equity securities of real estate companies.

T. Rowe Price Real Estate fund has a 5-year and 10-year annualized return of 5.5% and 2.6%, respectively. TRREX’s annual expense ratio is 0.86%, lower than the category average of 0.98%. T. Rowe Price Real Estate fund carries a Zacks Mutual Fund Rank #1.

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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