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3 Funds to Buy on a Solid Rebound in Homebuilding Market
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The U.S. homebuilding market is finally showing signs of rebound after suffering for more than a year as mortgage rates continue to ease following a steep decline in inflation. This is once helping homebuilders regain their lost confidence as buyers have started flocking to markets again.
According to the National Association of Homebuilders/Wells Fargo Index, homebuilder confidence rose to 44 in January from 37 in December to hit its highest level since September 2023.
Besides, pending home sales also jumped a solid 8.3% month over month in December. Building permits grew 1.9% on a month-over-month basis and 6.1% year over year in December to 1.495 million units. Housing starts jumped 7.6% year over year in December to 1.46 million units, beating analysts’ expectations of 1.44 million units.
Inflation is still above the 2% target but has declined sharply over the past year as the Federal Reserve adopted an aggressive monetary tightening campaign that saw it hiking interest rates by 525 points since March 2022 to take its benchmark policy rate to the range of 5.25-5.50%.
However, the Federal Reserve has finally halted hiking interest rates. The central bank left interest rates steady in its past three policy meetings and finally said that it would start cutting rates this year.
Lower interest rates bode well for the homebuilding industry as it will help homebuilders buy raw materials at a lower price and help buyers to avail lower mortgage rates.
The optimism surrounding rate cuts has also seen mortgage rates fall substantially over the past few months. The average rate on 30-year fixed mortgages was 6.93% last week, which, till a few months back, was hovering above 8%.
Mortgage rates are expected to fall further once the Fed starts cutting rates.
3 Best Choices
As a result, we’ve chosen three funds from the real estate sector that are worth buying. 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).
Fidelity Real Estate Income Fund (FRINX - Free Report) seeks current income and capital appreciation. FRINX normally invests in a balanced portfolio of common stocks, U.S. and foreign government securities, and a variety of corporate fixed-income obligations. Fidelity Real Estate Income Fund may invest up to 30% of its total assets in foreign securities.
Fidelity Real Estate Income Fund has a 5-year and 10-year annualized return of 3.3% and 5%, respectively. The annual expense ratio of 0.73% is lower than the category average of 1.08%. FRINX sports a Zacks Mutual Fund Rank #1.
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 (RRRAX - Free Report) seeks long-term capital appreciation and current income. RRRAX invests the majority of its net assets in equity securities of real estate investment trusts and real estate companies.
DWS RREEF Real Estate Securities Fund - Class A fund has a 5-year and 10-year annualized return of 4.9% and 7.1%, respectively. The annual expense ratio of 0.75% is lower than the category average of 1.08%. RRRAX sports a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Manning & Napier Real Estate S (MNREX - Free Report) fund aims for high current income and long-term capital growth by investing primarily in companies in the real estate industry. MNREX invests at least 80% of its assets in securities of companies that are directly engaged in the real estate industry as well as in industries serving or related to the real estate industry.
Manning & Napier Real Estate S fund has a 5-year and 10-year annualized return of 5% and 7%, respectively. The annual expense ratio of 0.85% is lower than the category average of 1.08%. MNREX carries a Zacks Mutual Fund Rank #1.
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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3 Funds to Buy on a Solid Rebound in Homebuilding Market
The U.S. homebuilding market is finally showing signs of rebound after suffering for more than a year as mortgage rates continue to ease following a steep decline in inflation. This is once helping homebuilders regain their lost confidence as buyers have started flocking to markets again.
According to the National Association of Homebuilders/Wells Fargo Index, homebuilder confidence rose to 44 in January from 37 in December to hit its highest level since September 2023.
Besides, pending home sales also jumped a solid 8.3% month over month in December. Building permits grew 1.9% on a month-over-month basis and 6.1% year over year in December to 1.495 million units. Housing starts jumped 7.6% year over year in December to 1.46 million units, beating analysts’ expectations of 1.44 million units.
Inflation is still above the 2% target but has declined sharply over the past year as the Federal Reserve adopted an aggressive monetary tightening campaign that saw it hiking interest rates by 525 points since March 2022 to take its benchmark policy rate to the range of 5.25-5.50%.
However, the Federal Reserve has finally halted hiking interest rates. The central bank left interest rates steady in its past three policy meetings and finally said that it would start cutting rates this year.
Lower interest rates bode well for the homebuilding industry as it will help homebuilders buy raw materials at a lower price and help buyers to avail lower mortgage rates.
The optimism surrounding rate cuts has also seen mortgage rates fall substantially over the past few months. The average rate on 30-year fixed mortgages was 6.93% last week, which, till a few months back, was hovering above 8%.
Mortgage rates are expected to fall further once the Fed starts cutting rates.
3 Best Choices
As a result, we’ve chosen three funds from the real estate sector that are worth buying. 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).
Fidelity Real Estate Income Fund (FRINX - Free Report) seeks current income and capital appreciation. FRINX normally invests in a balanced portfolio of common stocks, U.S. and foreign government securities, and a variety of corporate fixed-income obligations. Fidelity Real Estate Income Fund may invest up to 30% of its total assets in foreign securities.
Fidelity Real Estate Income Fund has a 5-year and 10-year annualized return of 3.3% and 5%, respectively. The annual expense ratio of 0.73% is lower than the category average of 1.08%. FRINX sports a Zacks Mutual Fund Rank #1.
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 (RRRAX - Free Report) seeks long-term capital appreciation and current income. RRRAX invests the majority of its net assets in equity securities of real estate investment trusts and real estate companies.
DWS RREEF Real Estate Securities Fund - Class A fund has a 5-year and 10-year annualized return of 4.9% and 7.1%, respectively. The annual expense ratio of 0.75% is lower than the category average of 1.08%. RRRAX sports a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Manning & Napier Real Estate S (MNREX - Free Report) fund aims for high current income and long-term capital growth by investing primarily in companies in the real estate industry. MNREX invests at least 80% of its assets in securities of companies that are directly engaged in the real estate industry as well as in industries serving or related to the real estate industry.
Manning & Napier Real Estate S fund has a 5-year and 10-year annualized return of 5% and 7%, respectively. The annual expense ratio of 0.85% is lower than the category average of 1.08%. MNREX carries a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
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 >>