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3 Real Estate Funds to Buy as Construction Activity Rebounds

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Per the latest report from the United States Department of Commerce, construction spending surged to its highest settlement in April since January 2016. This also marks its biggest increase since 2012. The construction market in the United States has been looking up for some time now.

Moreover, broad-based factors like low levels of unemployment, strong job additions in the construction sector and positive consumer confidence have fueled the sector’s growth. Under such circumstances, investing in real estate mutual funds seems prudent.

Construction Spending Surges in April

Construction spending in the United States rose 1.8% in April compared with a slump of 1.7% in March. The seasonally adjusted spending rate of $1.31 trillion in April was about 7.6% higher than the same period a year ago. Also, the consensus estimate for the month of April was an increase of 0.8%.

Such an increase was due to increased spending on private construction projects, which steadily rose to 2.8% in April. This marked its biggest increase since January 2012. Further, the outlays on private residential construction rose 4.5% to its highest settlement since November 1993. This followed a decline of 4.1% in the previous month.

Sectoral Hiring Remains Robust

Per the latest data from the Bureau of Labor Statistics, a total of 25,000 new jobs were added to the economy by the U.S. construction industry. Per the Associated Builders and Contractors’ (ABC) analysis of this data, approximately 286,000 jobs were added by the sector on a year-over-year basis. This marked its biggest increase since April 2016.

Moreover, unemployment rate in the sector declined about 2.1 percentage points to 4.4% in May. This marks its lowest level since July 2000. What also added to the gains was the fact that the national unemployment rate declined to 3.8% in May — its lowest settlement since April 2000.

On May 29, the Conference Board reported a surge in consumer confidence among Americans for the month of May. The report indicated a rebound in the level of confidence in the economy that a consumer would vest. The rise followed a decline in April. It also remained near its 18-year high level.

3 Best Choices

Given such circumstances, we have highlighted three real estate mutual funds that are poised to gain from such factors. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

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.

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 why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Advisor International Real Estate Fund Class I (FIRIX - Free Report)  seeks to invest primarily in foreign securities. The fund invests a bulk of its assets in securities of companies involved in the real estate industry as well as real estate-related investments. It allocates investments across countries and regions all over the world.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 6% and 5.9%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FIRIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.95%, which is below the category average of 1.33%.

Principal Real Estate Securities R5 (PREPX - Free Report)  seeks growth of total returns. PREPX invests the majority of its assets in equity securities of real estate companies. The fund focuses on value equity securities.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 4.9% and 6.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

PREPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.07%, which is below the category average of 1.21%.

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 the real estate sector, which includes 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.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 4.5% and 5.3%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

JIREX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.79%, which is below the category average of 1.21%.

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