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In the U.S., rising wages, in particular, and steady job openings have resulted in increased demand for land ownership in the metropolitan areas. These areas have witnessed a surge in housing demand.
Taking a closer look at the current scenario, the housing industry is actually reeling under extreme paucity of skilled labor amid rising prices of materials. But such factors are expected to wither away soon. After all, 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.
Staggering Amount of Investor Dry Powder to Target Real Estate
A lot of proptech startups aiming to tap the real estate market have been established lately. Such startups assist the real estate companies by improving the transaction process, easing the hassles involved with construction and providing newer methods of financing real estate projects. The crowdfunding legislations in 2012 and 2015 have provided the required stimulus for the growth of these startups.
Talking about real estate funding, venture capitalist and private equity investors had poured in about $5.2 billion in real estate startups by the end of 2018. Further, acquisitions and indirect funding have also been pivotal in shaping up the space of late. Moreover, angel investors are interested now, more than ever, to tap the space by investing liquid cash in real estate startups. As a matter of fact, approximately $226 billion is expected to be invested in real estate in 2019.
Opportunity Zones to Eliminate Capital Gain Taxes
Opportunity Zones, which were created as part of the 2017 Tax Cuts and Job Act, would go a long way in boosting the real estate market this year. As part of the arrangement, every U.S. governor earmarked 25% of the low-to-moderate income areas in their respective states. Such areas would then be converted to places where instead of paying capital gains’ taxes to the IRS, the amount would be deferred, reduced or eliminated as a whole.
Notably, this has been the most beneficial program for economic development in the United States in the past 10 years. Further, taxpayers would be required to defer their capital gains for seven years prior to 2026, in order to reap the benefits of such an arrangement. Moreover, this provision also allows for elimination of capital gains taxes in about 8700 “undeserved areas” of the country.
Baby Boomers to Propel Metropolitan Demand
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.
4 Best Choices
Given such circumstances, we have highlighted four real estate mutual funds that are poised to gain from such factors. These funds also carry a Zacks Mutual Fund Rank #1 (Strong 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 Advisor Real Estate Income A (FRINX - Free Report) invests heavily in debt and mortgage-backed securities of real estate companies and preferred and common stocks of real estate investment trusts (REITs). FRINX invests a bulk of its assets in securities of real estate companies and other real estate related investments.
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 6.2%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FRINX has an annual expense ratio of 1.01%, which is below the category average of 1.23%.
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 9% and 9.1%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
DFREX has an annual expense ratio of 0.18%, which is below the category average of 1.23%.
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 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 7.6% and 6.1%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSREX has an annual expense ratio of 0.00%, which is below the category average of 1.23%.
John Hancock II Real Estate Securities 1 (JIREX - Free Report) seeks appreciation of capital and income over the long term. JIREX invests primarily in equity securities of companies engaged in operations related to the real estate sector, which includes REITs. The fund invests in securities including common stocks, preferred stocks and convertible securities. It may invest a maximum of 10% of its assets in securities of companies domiciled outside the U.S. territory.
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 8% and 8.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
JIREX has an annual expense ratio of 0.80%, which is below the category average of 1.23%.
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4 Real Estate Funds to Play in 2019
In the U.S., rising wages, in particular, and steady job openings have resulted in increased demand for land ownership in the metropolitan areas. These areas have witnessed a surge in housing demand.
Taking a closer look at the current scenario, the housing industry is actually reeling under extreme paucity of skilled labor amid rising prices of materials. But such factors are expected to wither away soon. After all, 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.
Staggering Amount of Investor Dry Powder to Target Real Estate
A lot of proptech startups aiming to tap the real estate market have been established lately. Such startups assist the real estate companies by improving the transaction process, easing the hassles involved with construction and providing newer methods of financing real estate projects. The crowdfunding legislations in 2012 and 2015 have provided the required stimulus for the growth of these startups.
Talking about real estate funding, venture capitalist and private equity investors had poured in about $5.2 billion in real estate startups by the end of 2018. Further, acquisitions and indirect funding have also been pivotal in shaping up the space of late. Moreover, angel investors are interested now, more than ever, to tap the space by investing liquid cash in real estate startups. As a matter of fact, approximately $226 billion is expected to be invested in real estate in 2019.
Opportunity Zones to Eliminate Capital Gain Taxes
Opportunity Zones, which were created as part of the 2017 Tax Cuts and Job Act, would go a long way in boosting the real estate market this year. As part of the arrangement, every U.S. governor earmarked 25% of the low-to-moderate income areas in their respective states. Such areas would then be converted to places where instead of paying capital gains’ taxes to the IRS, the amount would be deferred, reduced or eliminated as a whole.
Notably, this has been the most beneficial program for economic development in the United States in the past 10 years. Further, taxpayers would be required to defer their capital gains for seven years prior to 2026, in order to reap the benefits of such an arrangement. Moreover, this provision also allows for elimination of capital gains taxes in about 8700 “undeserved areas” of the country.
Baby Boomers to Propel Metropolitan Demand
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.
4 Best Choices
Given such circumstances, we have highlighted four real estate mutual funds that are poised to gain from such factors. These funds also carry a Zacks Mutual Fund Rank #1 (Strong 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 Advisor Real Estate Income A (FRINX - Free Report) invests heavily in debt and mortgage-backed securities of real estate companies and preferred and common stocks of real estate investment trusts (REITs). FRINX invests a bulk of its assets in securities of real estate companies and other real estate related investments.
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 6.2%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FRINX has an annual expense ratio of 1.01%, which is below the category average of 1.23%.
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 9% and 9.1%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
DFREX has an annual expense ratio of 0.18%, which is below the category average of 1.23%.
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 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 7.6% and 6.1%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSREX has an annual expense ratio of 0.00%, which is below the category average of 1.23%.
John Hancock II Real Estate Securities 1 (JIREX - Free Report) seeks appreciation of capital and income over the long term. JIREX invests primarily in equity securities of companies engaged in operations related to the real estate sector, which includes REITs. The fund invests in securities including common stocks, preferred stocks and convertible securities. It may invest a maximum of 10% of its assets in securities of companies domiciled outside the U.S. territory.
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 8% and 8.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
JIREX has an annual expense ratio of 0.80%, which is below the category average of 1.23%.
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 >>