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U.S. Construction Spending Nudges Up: 3 Fund Picks

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The U.S. Commerce Department reported on Jul 2 that domestic construction spending had ticked up in May, buoyed by an increase in outlays on private as well as public construction projects.

Although, the metric came in below market expectations, it showed a steep rise on a year-over-year basis. Such an increase points at strength in the construction market despite trade war-related woes. Under such broadly encouraging conditions, investing in mutual funds with significant exposure to construction companies makes it prudent.

U.S. Construction Activity Gains Traction

Construction spending in the United States ticked up 0.4% in May. The figure came in lower than the consensus estimate of an increase of 0.5%. However, spending on construction projects across the United States increased 4.5% in May to an all-time high of $1.31 trillion.

However, data for April was revised down to 0.9% instead of 1.8% reported earlier. Experts speculated that a downward revision in April data could lead to economists reducing their second-quarter GDP growth forecast even further. However, the Atlanta Federal Reserve stated on Jul 2 that it expects the U.S. economy to grow at an annualized pace of 3.8% in the second quarter compared with 2% in the first.

Factors Supporting Growth

The uptick in May was supported by a steady increase in outlays on private as well as public construction projects. The total investment in private construction rose 0.3% in May. Further, investments in residential projects alone rose 0.87% in May. Also, spending on new single-family homes shot up 0.6% and that on apartment construction rose 1.6%. However, spending on private non-residential projects declined 0.3% in May.

On the other hand, investment in public construction rose 0.7% in May to $304.1 billion — its highest level since October 2010. What contributed to such an increase was a 0.6% rise in state and local construction projects to $282.1 billion. This marked its biggest increase since 2009.

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 and focuses on value equity securities.

This Sector – Real Estate product has a track 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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