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After spending days in the dark, the U.S. housing sector is finally recovering. This is evident from the fact that there is an increased tendency among millennials and baby boomers of land ownership. Strong economic fundamentals and increase in millennial population gave a boost to the housing market in the recent past.
Moreover, the hiring boom in construction sheds light on the fact that such impediments would not last long. Under such circumstances, investing in real estate mutual funds seems prudent.
Fears of Bubble Misplaced
Most of the housing data released this month has been disappointing. Housing Starts swooned to 1,201000 in September from 1,268,000 in the previous month. Whereas the building permits declined to 1,241,000 from 1,249,000 in August. Further, Construction Spending, New Home Sales and Existing Home Sales declined to 0.1%, 553,000 and 5.15 million units, respectively last month.
During the last economic crisis about 10 years ago, markets were overheated amid a glut of new houses. Further, subprime mortgage financing weighed heavily on the markets, resulting in a bump in speculative inventory. Taking a closer look at the current scenario, the housing industry is actually reeling under the pressure of extreme paucity of skilled labor amid rising prices of materials.
Meanwhile, the economy already expanded at a seasonally adjusted rate of 4.2% in the April-June quarter, per the Commerce Department. Meanwhile, the Labor Department stated that employers in the construction industry added 23,000 new construction jobs in September, while it has added 315,000 jobs over the past 12 months. It is, therefore, evident that the housing space is recovering and lackluster economic data will not mar the industry’s fortunes in the long run.
Metros Witness Surge in Housing Demand
Rising wages and a higher number of job openings have resulted in increased demand for land ownership in the metropolitan areas of the country. These areas have witnessed a surge in housing demand, north of 3% on average annual basis.
Further, growth in population has also resulted in increased migration toward the metros. This trend is prevalent among millennials and baby boomers who are earning well and moving to bigger cities in pursuit of better lives. Such a trend has kept housing demand steady in these areas.
Per the National Association of Home Builders/Wells Fargo (“NAHB”), the monthly confidence index went up one point to 68% in October. Meanwhile, Pending Home Sales surged 0.5% in the last month after falling 1.9% in August.
3 Best Choices
Given such circumstances, we have highlighted three real estate mutual funds that are poised to gain from such factors. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Series Real Estate Income Fund (FSREX - Free Report) seeks appreciation of income and capital. FSREX invests the majority of its assets in preferred and common stocks of companies involved in the real estate sector. FSREX invests heavily in real estate investment trusts (REITs) as well as in mortgage-backed securities and debt securities of real estate entities.
This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 6.7% and 6.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FIRIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.63%, which is below the category average of 1.20%.
Principal Real Estate Securities R5 (PREPX - Free Report) seeks growth of total returns. PREPX invests the majority of its assets in equity securities of real estate companies and focuses on value equity securities.
This Sector – Real Estate product has a track of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 8% and 10.1%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
PREPX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.07%, which is below the category average of 1.20%.
DFA Real Estate Securities Portfolio Institutional Class (DFREX - Free Report) invests in marketable equity securities of companies engaged in ownership, management, development, construction and sale of residential, commercial as well as industrial real estate. DFREX normally invests in equity securities of companies in certain real estate investment trusts as well as companies involved in residential construction.
This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 7.9% and 9.4%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
JIREX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.18%, which is below the category average of 1.20%.
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3 Funds to Gain From U.S. Housing Recovery
After spending days in the dark, the U.S. housing sector is finally recovering. This is evident from the fact that there is an increased tendency among millennials and baby boomers of land ownership. Strong economic fundamentals and increase in millennial population gave a boost to the housing market in the recent past.
Moreover, the hiring boom in construction sheds light on the fact that such impediments would not last long. Under such circumstances, investing in real estate mutual funds seems prudent.
Fears of Bubble Misplaced
Most of the housing data released this month has been disappointing. Housing Starts swooned to 1,201000 in September from 1,268,000 in the previous month. Whereas the building permits declined to 1,241,000 from 1,249,000 in August. Further, Construction Spending, New Home Sales and Existing Home Sales declined to 0.1%, 553,000 and 5.15 million units, respectively last month.
During the last economic crisis about 10 years ago, markets were overheated amid a glut of new houses. Further, subprime mortgage financing weighed heavily on the markets, resulting in a bump in speculative inventory. Taking a closer look at the current scenario, the housing industry is actually reeling under the pressure of extreme paucity of skilled labor amid rising prices of materials.
Meanwhile, the economy already expanded at a seasonally adjusted rate of 4.2% in the April-June quarter, per the Commerce Department. Meanwhile, the Labor Department stated that employers in the construction industry added 23,000 new construction jobs in September, while it has added 315,000 jobs over the past 12 months. It is, therefore, evident that the housing space is recovering and lackluster economic data will not mar the industry’s fortunes in the long run.
Metros Witness Surge in Housing Demand
Rising wages and a higher number of job openings have resulted in increased demand for land ownership in the metropolitan areas of the country. These areas have witnessed a surge in housing demand, north of 3% on average annual basis.
Further, growth in population has also resulted in increased migration toward the metros. This trend is prevalent among millennials and baby boomers who are earning well and moving to bigger cities in pursuit of better lives. Such a trend has kept housing demand steady in these areas.
Per the National Association of Home Builders/Wells Fargo (“NAHB”), the monthly confidence index went up one point to 68% in October. Meanwhile, Pending Home Sales surged 0.5% in the last month after falling 1.9% in August.
3 Best Choices
Given such circumstances, we have highlighted three real estate mutual funds that are poised to gain from such factors. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Series Real Estate Income Fund (FSREX - Free Report) seeks appreciation of income and capital. FSREX invests the majority of its assets in preferred and common stocks of companies involved in the real estate sector. FSREX invests heavily in real estate investment trusts (REITs) as well as in mortgage-backed securities and debt securities of real estate entities.
This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 6.7% and 6.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FIRIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.63%, which is below the category average of 1.20%.
Principal Real Estate Securities R5 (PREPX - Free Report) seeks growth of total returns. PREPX invests the majority of its assets in equity securities of real estate companies and focuses on value equity securities.
This Sector – Real Estate product has a track of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 8% and 10.1%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
PREPX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.07%, which is below the category average of 1.20%.
DFA Real Estate Securities Portfolio Institutional Class (DFREX - Free Report) invests in marketable equity securities of companies engaged in ownership, management, development, construction and sale of residential, commercial as well as industrial real estate. DFREX normally invests in equity securities of companies in certain real estate investment trusts as well as companies involved in residential construction.
This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 7.9% and 9.4%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
JIREX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.18%, which is below the category average of 1.20%.
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 >>