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3 Funds to Buy on a Rebound in Construction Spending

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Spending on construction activity had been slowing since the beginning of the second half of 2022, as interest rates had been climbing sharply owing to the Fed’s aggressive rate hike policy. The homebuilding industry has been the biggest sufferer due to this.

However, prices finally seem to be cooling over the past couple of months, showing signs that inflation is easing. This has once again resulted in a jump in spending on construction projects. Construction spending rebounded in November, driven by investments in private non-residential structures. Thus, funds like GuideStone Funds Global Real Estate Securities Fund Investor Class (GREZX - Free Report) , T. Rowe Price Global Real Estate Fund (TRGRX - Free Report) and Northern Multi-Manager Global Real Estate Fund (NMMGX - Free Report) are likely to benefit in the near term.

Construction Spending Rises

On Jan 3, the U.S. Census Bureau reported that spending on construction projects jumped 0.2% in November after falling 0.2% in October. Although it came in lower than the consensus estimate of a rise of 0.4%, the good news is that spending has finally begun to increase after falling for two straight months.

On a year-over-year basis, construction spending rose 8.5% in November. Spending on private construction projects increased by 0.3% in November after declining 0.7% in October. Private non-residential project spending increased 1.7%, particularly driven by spending on gas and well drilling.

The housing market has continued to struggle owing to higher exorbitant borrowing rates. Investment in single-family homes dipped 2.9%, while residential buildings fell 0.5%. However, since there is still a considerable demand for rental homes, spending on multi-family housing developments increased an impressive 2.4%.

The housing market has been suffering the most as mortgage rates continue to rise owing to steep interest rate hikes imposed by the Fed in its effort to tame soaring inflation. However, inflation finally seems to be easing.

The consumer price index in December dropped to 6.5% from 7.1% in November 2022 on a year-over-year basis, according to data released last week by the Labor Department. This has been the smallest increase in more than a year. Moreover, inflation fell 0.1% month over month in December after increasing 0.1% in November.

The Fed had earlier hinted that it could go slow on its aggressive monetary policy. It finally kept it promise by hiking rates by 50 basis points in December after four consecutive interest rate increases by 75 basis points. A smaller interest rate increase is a sign that inflation is finally starting to decline.

As a result, we've chosen three such funds from the real estate sector that are worth buying. Moreover, these funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Our Picks

GuideStone Funds Global Real Estate Securities Fund Investor Class seeks appreciation of capital and current income over the long term. GREZX primarily invests its assets (including any borrowings for investment purposes) in equity securities of real estate investment trusts and other real estate-related companies.

GuideStone Funds Global Real Estate Securities Fund Investor Class has a 5-year and 10-year annualized return of 1.6% and 3.9%, respectively. The annual expense ratio of 1.08% is lower than the category average of 1.21%. GREZX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

T. Rowe Price Global Real Estate Fund seeks appreciation of capital and current income over the long term. TRGRX primarily invests its assets (including any borrowings for investment purposes) in equity securities of real estate businesses around the world, including those in the United States. T. Rowe Price Global Real Estate Fund is a non-diversified fund.

T. Rowe Price Global Real Estate Fund has a 5-year and 10-year annualized return of 0.8% and 3.10%, respectively. The annual expense ratio of 0.95% is lower than the category average of 1.21%. TRGRX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Northern Multi-Manager Global Real Estate Fund aims for long-term capital growth and current income. NMMGX invests the majority of its assets in equity securities of real estate companies and those related to the real estate industry. Northern Multi-Manager Global Real Estate Fund may invest in securities of companies around the world.

Northern Multi-Manager Global Real Estate Fund has a 5-year and 10-year annualized return of 1.5% and 3.1%, respectively. The annual expense ratio of 0.91% is lower than the category average of 1.21%. NMMGX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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