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New Residential Construction Hits 4-Month High: 5 Fund Picks
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Despite July’s weak homebuilder sentiment reading, the overall outlook for the real estate sector remains positive. New residential construction data was upbeat with housing starts registering the fastest pace of increase in June in the last four months. Additionally, building permits and housing completions data were also encouraging.
Following these gains, the addition of real estate mutual funds to one’s portfolio might be a suitable investment option. These are convenient ways of playing the real estate market because of their low initial investment requirements. Investors willing to hold long-term positions would do well to consider these funds as they add stability and bring steady returns to a portfolio.
NAHB Index Remains Above 50
Though the NAHB sentiment index declined this month, it still remained above the 50 mark, indicating improvement in the sector. For sure, the NAHB/Wells Fargo builder sentiment index declined from 67 in June to 64 in July, its lowest level since last November. But it is important to remember that any level above 50 indicates that builders’ views on sale conditions are optimistic.
According to the NAHB Chairman Granger MacDonald, rising lumber and material prices remained a concern for homebuilders. This is likely a fallout of the stiff tariff imposed on Canadian lumber imports. However, he also said that “consumer interest in the new-home market” will remain strong. Moreover, the association’s Chief Economist Robert Dietz said builders should focus on managing “some increasing supply-side costs to keep home prices competitive."
New Residential Construction Remains Upbeat
Per the Census Bureau and Housing and Urban Development Department, new residential construction also came in favorable in June. Housing starts rose to 1.215 million in June from the upwardly revised level of 1.122 million May, well above analysts’ estimate of 1,161 million. Housing starts increased last month after three straight months of declines. The metric was also 2.1% above the year-ago figure. Both privately owned housing starts for single family and multifamily moved higher. Starts rose across several major geographical regions. Particularly notable was a jump of 83.7% in the Northeast and 22% in the Midwest.
Moreover, building permits, which are an indicator of future housing activity prospects, increased from 1.168 million May to 1.254 million in June. This was also higher than the estimated level of 1,197 million and represents a 5.1% year over year increase. Further, permits for single-family residences rose from May’s revised figure of 779,000 to 811,000 in June. Additionally, housing completions increased by 5.2% to 1,203 million, its highest level witnessed since Nov 2016.
Buy These 5 Real Estate Mutual Funds
As discussed, most of the recent data related to homebuilding suggest that housing activity is improving. This is borne out by the fact that Real Estate SPDR (XLRE) has gained 4.7% in the first half of 2017, turning out to be one of the best performing sectors among the S&P 500. Additionally, mutual funds related to this sector also registered strong returns. According to Morningstar, the real estate mutual fund posted year-to-date return of 3.45%.
Banking on this encouraging backdrop, we have selected five real estate mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging year-to-date (YTD) return. They also have minimum initial investment within $5000 and low expense ratios.
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.
TIAA-CREF Real Estate Securities Retirement (TRRSX - Free Report) seeks maximum total return over the long run through growth of capital and current income. TRRSX invests a large chunk of its assets in companies primarily involved in operations related to the real estate domain. The fund may invest a maximum of 15% of its assets in securities issued by foreign entities.
TRRSX has YTD returns of 7.9%, and an expense ratio of 0.76% as compared to the category average of 1.27%. The fund sports a Zacks Mutual Fund Rank #1.
Schwab Global Real Estate (SWASX - Free Report) invests a bulk of its assets in common stocks of companies which are related to the real estate sector. SWASX may also invest in real estate investment trusts. The fund may also invest in derivative instruments like options, swaps and futures which are based on the real estate industry.
SWASX has YTD returns of 11.6%, and an expense ratio of 1.05% as compared to the category average of 1.40%. The fund has a Zacks Mutual Fund Rank #1.
Fidelity International Real Estate (FIREX - Free Report) invests majority of its assets in foreign securities. FIREX invests a large portion of its assets in common stocks of companies, which are involved in the real estate sector. The fund allocates its assets in several different nations.
FIREX has YTD returns of 15.7%, and an expense ratio of 1.11% as compared to the category average of 1.40%. The fund has a Zacks Mutual Fund Rank #1.
Principal Real Estate Securities R5 (PREPX - Free Report) seeks growth of total return. PREPX invests the lion’s share of its assets in equity securities of real estate companies. The fund focuses on value equity securities.
PREPX has YTD returns of 4.8%, and an expense ratio of 1.08% as compared to the category average of 1.27%. It has a Zacks Mutual Fund Rank #2.
John Hancock II Real Estate Securities 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 real estate sector, which also include REITs. The fund invests in securities including common stock, preferred stock and convertible securities. It may invest a maximum of 10% of its assets in securities of companies domiciled outside the U.S. territory.
JIREX has YTD returns of 4.5%, and an expense ratio of 0.78% as compared to the category average of 1.27%. The fund has a Zacks Mutual Fund Rank #1.
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New Residential Construction Hits 4-Month High: 5 Fund Picks
Despite July’s weak homebuilder sentiment reading, the overall outlook for the real estate sector remains positive. New residential construction data was upbeat with housing starts registering the fastest pace of increase in June in the last four months. Additionally, building permits and housing completions data were also encouraging.
Following these gains, the addition of real estate mutual funds to one’s portfolio might be a suitable investment option. These are convenient ways of playing the real estate market because of their low initial investment requirements. Investors willing to hold long-term positions would do well to consider these funds as they add stability and bring steady returns to a portfolio.
NAHB Index Remains Above 50
Though the NAHB sentiment index declined this month, it still remained above the 50 mark, indicating improvement in the sector. For sure, the NAHB/Wells Fargo builder sentiment index declined from 67 in June to 64 in July, its lowest level since last November. But it is important to remember that any level above 50 indicates that builders’ views on sale conditions are optimistic.
According to the NAHB Chairman Granger MacDonald, rising lumber and material prices remained a concern for homebuilders. This is likely a fallout of the stiff tariff imposed on Canadian lumber imports. However, he also said that “consumer interest in the new-home market” will remain strong. Moreover, the association’s Chief Economist Robert Dietz said builders should focus on managing “some increasing supply-side costs to keep home prices competitive."
New Residential Construction Remains Upbeat
Per the Census Bureau and Housing and Urban Development Department, new residential construction also came in favorable in June. Housing starts rose to 1.215 million in June from the upwardly revised level of 1.122 million May, well above analysts’ estimate of 1,161 million. Housing starts increased last month after three straight months of declines. The metric was also 2.1% above the year-ago figure. Both privately owned housing starts for single family and multifamily moved higher. Starts rose across several major geographical regions. Particularly notable was a jump of 83.7% in the Northeast and 22% in the Midwest.
Moreover, building permits, which are an indicator of future housing activity prospects, increased from 1.168 million May to 1.254 million in June. This was also higher than the estimated level of 1,197 million and represents a 5.1% year over year increase. Further, permits for single-family residences rose from May’s revised figure of 779,000 to 811,000 in June. Additionally, housing completions increased by 5.2% to 1,203 million, its highest level witnessed since Nov 2016.
Buy These 5 Real Estate Mutual Funds
As discussed, most of the recent data related to homebuilding suggest that housing activity is improving. This is borne out by the fact that Real Estate SPDR (XLRE) has gained 4.7% in the first half of 2017, turning out to be one of the best performing sectors among the S&P 500. Additionally, mutual funds related to this sector also registered strong returns. According to Morningstar, the real estate mutual fund posted year-to-date return of 3.45%.
Banking on this encouraging backdrop, we have selected five real estate mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging year-to-date (YTD) return. They also have minimum initial investment within $5000 and low expense ratios.
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.
TIAA-CREF Real Estate Securities Retirement (TRRSX - Free Report) seeks maximum total return over the long run through growth of capital and current income. TRRSX invests a large chunk of its assets in companies primarily involved in operations related to the real estate domain. The fund may invest a maximum of 15% of its assets in securities issued by foreign entities.
TRRSX has YTD returns of 7.9%, and an expense ratio of 0.76% as compared to the category average of 1.27%. The fund sports a Zacks Mutual Fund Rank #1.
Schwab Global Real Estate (SWASX - Free Report) invests a bulk of its assets in common stocks of companies which are related to the real estate sector. SWASX may also invest in real estate investment trusts. The fund may also invest in derivative instruments like options, swaps and futures which are based on the real estate industry.
SWASX has YTD returns of 11.6%, and an expense ratio of 1.05% as compared to the category average of 1.40%. The fund has a Zacks Mutual Fund Rank #1.
Fidelity International Real Estate (FIREX - Free Report) invests majority of its assets in foreign securities. FIREX invests a large portion of its assets in common stocks of companies, which are involved in the real estate sector. The fund allocates its assets in several different nations.
FIREX has YTD returns of 15.7%, and an expense ratio of 1.11% as compared to the category average of 1.40%. The fund has a Zacks Mutual Fund Rank #1.
Principal Real Estate Securities R5 (PREPX - Free Report) seeks growth of total return. PREPX invests the lion’s share of its assets in equity securities of real estate companies. The fund focuses on value equity securities.
PREPX has YTD returns of 4.8%, and an expense ratio of 1.08% as compared to the category average of 1.27%. It has a Zacks Mutual Fund Rank #2.
John Hancock II Real Estate Securities 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 real estate sector, which also include REITs. The fund invests in securities including common stock, preferred stock and convertible securities. It may invest a maximum of 10% of its assets in securities of companies domiciled outside the U.S. territory.
JIREX has YTD returns of 4.5%, and an expense ratio of 0.78% as compared to the category average of 1.27%. The fund has a Zacks Mutual Fund Rank #1.
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 >>