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Housing Starts Hits 11-Year High: 3 Real Estate Funds to Buy

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Homebuilding in the United States surged in May to its highest settlement in the last 11 years. The stimulus for the growth was provided by an upswing in single-family as well as multi-family housing starts. Further, a steady increase in home construction due to robust economic conditions and establishment of newer housing apartments also lent support.

Economists believe that the U.S. economy would witness a surplus in housing inventory by the end of this year. Strong labor market conditions, timely introduction of tax cuts and wage growth have contributed in a big way to the housing recovery.

Under such broadly encouraging conditions, investing in mutual funds from the real estate sector seems prudent.

Housing Starts at the Highest Level Since 2007

In May, housing starts increased 5% to a seasonally adjusted annual rate of 1.35 million units. This marked its highest level since July 2007. Further, it also represents a rebound from April’s decline of 3.7%. April’s figure was also revised marginally upward from the previously reported 1.286 million units to 1.287 million units.

Higher building activity in the Midwest was the primary reason for the upswing in housing starts. Construction in the region increased 62.2%, marking the highest level in one month since September 2006. These gains outweighed declines that were witnessed in other regions of the country and included the Northeast and South. 

Single-Family Construction Propelled Such Growth

Single-family housing starts increased 10.6% to 936,000 in the past month. This marked its highest levels since November 2017. Single-family homes constitute the majority of the housing market. An increase in this segment points to strength in the market as well as the overall U.S. economy. Notably, multi-family housing starts also rebounded in May, increasing 7.5% to settle at 414,000.

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 6.4% and 7.3%, 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 1.34%.

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 5.7% and 8.2%, 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 5.5% and 7.1%, 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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