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Building Permits Near 13-Year High: 3 Fund Picks

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Per the joint report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, homebuilding in the United States rebounded in the month of January as permits for building new homes surged to their highest level since 2007. The metric increased 9.2% to 1.551 million units in the month.

Further, single-family authorizations increased 6.4% to 987,000 in January from the prior month. Also, authorization of units in buildings with five units or more came in at 522,000 in the month.

Meanwhile, per the latest reports, U.S. homebuilder confidence remained at a 20-year high in February. The National Association of Home Builders’ Housing Market Index decreased 1 point to 74 in the month. However, the index remained at its highest level since 1999. A reading above 50 indicates that a greater number of builders view conditions as good.

Further, Federal Reserve’s move to lower interest rates has been supporting the U.S. economy. This is evident from the fact that the country’s housing sector has been exhibiting strength at a time when the global economy is reeling under pressure from weak economic fundamentals.

America’s housing market remains on solid footing. The space has been immensely supported by the lowest mortgage rates in over three years’ time. Housing accounts for about 3.1% of the GDP and a stable housing market is expected to continue supporting U.S. economic expansion, which by the way is in its 11th year.

For investors looking to park their money in the real estate sector, mutual funds are the cheapest and most-convenient options. This category of funds also offers solid protection against inflation. The real estate sector has recently seen tough times but the presence of this investment vehicle generally adds stability to a portfolio. Usually, volatility in property prices is far less than the extent experienced by stocks. Adding such funds to a widely diversified portfolio would increase returns, while significantly reducing the associated risk.

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, the 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).

Cohen & Steers Real Estate Securities Fund, Inc. Class A (CSEIX - Free Report) invests the majority of its assets in common stocks and other equity securities issued by real estate companies.

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 10.8% and 8.4%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

CSEIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.14%, which is below the category average of 1.22%.

Fidelity Real Estate Income Fund (FRIFX - Free Report) seeks higher-than-average income as well as appreciation of capital. It invests the lion’s share of its assets in real-estate companies as well as other real-estate related investments. The fund also invests in preferred and common stocks of real estate investment trusts, debt securities of real estate entities as well as commercial and other mortgage-backed securities.

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 8.2% and 6.9%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FRIFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.75%, which is below the category average of 1.22%.

John Hancock Funds II Real Estate Securities Fund Class 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 10.5% and 6.7%, 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 #2 and an annual expense ratio of 0.80%, which is below the category average of 1.22%.

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