Record-high inflation with supply-side bottlenecks, the Federal Reserve’s hawkish stance on tightening monetary policy and the lingering effects of the coronavirus pandemic are consistently acting as speed breakers to the housing market’s momentum. However, strong optimism among home builders with mortgage rates still low and millennials reaching the prime home-buying years is driving housing demand. Here are three mutual funds investors should consider –Fidelity Real Estate Investment Portfolio (FRESX Quick QuoteFRESX - Free Report) , DWS RREEF Real Estate Securities Fund - Class A (RRRAX Quick QuoteRRRAX - Free Report) and JHancock Real Estate Securities Fund Class 1 (JIREX Quick QuoteJIREX - Free Report) .

Homebuilders have been confident during the pandemic as a huge population chose to migrate to the suburbs to avoid the city crowd. In fact, mortgage rates remained at a record low, under 3% for a large part of the year, drawing in homebuyers. The 30-year fixed-rate mortgage now stands at 3.12% for the week ending Dec 16, per Freddie Mac’s data. Although the Fed’s hawkish stance signals multiple rate hikes in 2022, the central bank is also expected to keep interest rates near zero until maximum employment level is achieved. The NAHB/Wells Fargo Housing Market Index (HMI) showedthat builder confidence increased for the fourth consecutive month to 84 in December. Confidence is rising for single-family homes, with sales predictions for the next six months remaining steady at 84.

Recent housing data also strongly support builders’ confidence. On Dec 16, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported that building permits of new housing units increased 3.6% in November, at a seasonally adjusted annual rate of 1,712,000 and October’s figures were also upwardly revised to 1,653,000. The consensus estimate for November was 1,660,000. The same report also stated that housing starts came in at a seasonally adjusted annual rate of 1,679,000, a 12% from October, above the consensus estimate of 1,566,000.

Additionally, the housing market will constantly be supported by millennials, as they stand to inherit $68 trillion from the baby boomers. With an urge to make sustainable investments and online money management platforms, millennials have more options than their earlier generations. The pandemic has cut short their travels last year and many have rerouted the money into building a cozier place to live in. According to the CoreLogic Loan Application Database report, millennials made up 67% of first-time home purchase applications and 37% of repeat home purchase applications in 2021, as of Oct 4.

3 Fund Picks

We have shortlisted three 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 portfolio diversification without several commission charges 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 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 10.9% and 9.3% 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.

Fidelity Real Estate Investment Portfolio has an annual expense ratio of 0.73% versus the category average of 1.08%.

DWS RREEF Real Estate Securities Fund - Class A aims for long-term capital appreciation and current income. RRRAX is non-diversified and invests most assets 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, the fund has returned 13.5% and 11.1% 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.

DWS RREEF Real Estate Securities Fund - Class A has an annual expense ratio of 0.99%, which is below the category average of 1.08%.

JHancock Real Estate Securities Fund Class 1 aims for long-term capital appreciation and current income. The majority of this fund’s assets are invested in equity securities of REITs and real estate companies. This non-diversified fund’s investment in equity securities includes common stocks, preferred stocks and securities convertible into common stocks.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 14.6% and 11.8% 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.

JHancock Real Estate Securities Fund Class 1 has an annual expense ratio of 0.82%, below the category average of 1.20%.

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