Back to top

Image: Bigstock

Builders Make Headways in August Despite Bumps: 4 Fund Picks

Read MoreHide Full Article

The U.S. housing boom that began on the onset of the pandemic has hit several bottlenecks over the past months. After hitting a 15-year high in March, building starts slowed down drastically though it remains mostly above the pre-pandemic levels. On Sep 21, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported that homebuilding activities have surged in August despite shortage of land, labor and materials.

Per the report, in August, building permits were at a seasonally adjusted annual rate of 1.728 million, surpassing the consensus estimate of 1.620 million and above the downwardly revised July’s figure of 1.630 million. Meanwhile, housing starts across the country were at a rate of 1.615 million, higher than the consensus estimate and July’s revised figure of 1.554 million.

This 6% jump in building permits and 3.9% rise in housing starts also support the recent jump in homebuilder sentiment. The National Association of Home Builders/Wells Fargo Housing Market Index rose to 76 for the first time in three months as lumber prices eased and buyer demand grew.

Builders are constantly facing hurdles in terms of affordability as they are forced to raise prices in order to meet construction costs. Additionally, single-family housing starts hit a snag for the second consecutive month in August, declining 2.8% as builders continued to struggle with shortages of materials and labor. Moreover, backlogs of construction, yet to be started, increased 3.7%, a record high, where single-family homes constructions near a 15-year high.

Rising cost of lumber, especially softwood lumber, has been a challenge for builders. In fact, during spring, lumber price had reached more than $1,600 per thousand board feet. However, there has been a decline in cost which is around $400.

Meanwhile, a historically-low mortgage rate has been supporting buyers. Per Freddie Mac’s report, the rate for the 30-year mortgage rate for the week ending Sep 16 came in at 2.86%. The rates have been around and under 3%.

4 Fund Picks

Despite the backlogs and shortage in land, material and labor, demand for homes is high and will continue to boost the U.S. housing space. Thus, we have shortlisted four Zacks Mutual Fund Rank #1 (Strong Buy) mutual funds, which have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.

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 the reasons for parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Real Estate Investment Portfolio (FRESX - Free Report) fund aims for above-average income and long-term capital growth, which is consistent with reasonable investment risk. This non-diversified fund invests primarily in common stocks. The majority of FRESX’s assets are invested in securities of companies, principally engaged in the real estate industry and other real estate-related investments.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, FRESX has returned 11.4% and 7.6% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FRESX has an annual expense ratio of 0.74% versus the category average of 1.08%.

Fidelity Advisor Real Estate Income Fund Class A (FRINX - Free Report) aims for higher-than-average income. As a secondary objective, the fund seeks capital growth. FRINX invests majority of its assets in common stocks of REITs as well as securities of companies principally engaged in the real estate industry and other real estate-related investments.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, FRINX has returned nearly 9% and 7.2% over the past three and five years, 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% versus the category average of 1.08%.

Neuberger Berman Real Estate Fund Class R6 (NRREX - Free Report) aims for total return. Additionally, the fund gives importance to capital appreciation and current income. Majority of this non-diversified fund’s assets are invested in equity securities of real estate investment trusts and real estate companies.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, NRREX has returned 16.2% and 11.2% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

NRREX has an annual expense ratio of 0.76%, which is below the category average of 1.08%.

MFS Global Real Estate Fund Class R6 (MGLRX - Free Report) aims for total returns. The fund invests majority of assets in U.S. equity securities and foreign real estate-related investments of any size.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, MGLRX has returned 13.9% and 10.5% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

MGLRX has an annual expense ratio of 0.90%, which is below the category average of 1.21%.

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 >>

Published in