Back to top

U.S. Construction Spending Gains Traction: 3 Fund Picks

Read MoreHide Full Article

The U.S. Commerce Department reported on Sep 4 that domestic construction spending picked up in the month of July. Such an increase was achieved on the back of a spike in homebuilding activity as well as construction of publicly funded schools and highways.

Although, the metric came in below expectations, it showed a steep rise on a year-over-year basis. This points to the fact that construction activity in the United States remained largely unperturbed by increasing geopolitical tensions. Under such encouraging conditions, investing in mutual funds with significant exposure to construction companies seems judicious.

Construction Activity Nudges Up in July

Construction spending in the United States increased 0.1% in July. The figure came in lower than the consensus estimate of an increase of 0.5%. However, the July figure increased 5.8% from the same period last year. In fact, through the first seven months of the year, spending was 5.2% higher than in the same period of 2017.

Further, spending on public construction projects gained 0.7% in July after declining 1.7% in the previous month. Notably, government spending on educational and highway constructions jumped 2.1% and 0.4%, respectively.

Factors Supporting Growth

July’s increase was also supported by an uptick in residential construction, which gained 0.6% from June following two straight months of declines. Further, the metric surged 6.6% from the same period in 2017, with new single-family and multi-family constructions gaining 6% and 1.1%, respectively.

Meanwhile, builders continue to witness robust demand for new homes, buoyed by steady increase in the number of job additions as well as income growth. New home sales figure was 12.8% higher in July than last year, reflecting strong demand for homes as the economy continues to create jobs.

3 Best Choices

We have, thus, selected three real estate mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. 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).

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 6.6% and 9.2%, 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 1.25%.

DFA Real Estate Securities Portfolio Institutional Class (DFREX - Free Report) invests in marketable equity securities of companies engaged in ownership, management, development, construction and sale of residential, commercial as well as industrial real estate. DFREX normally invests in equity securities of companies in certain real estate investment trusts as well as companies involved in residential construction.

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 6.6% and 8.4%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

DFREXhas a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.18%, which is below the category average of 1.25%.

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 6.4% and 8.1%, 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 #1 and an annual expense ratio of 0.79%, which is below the category average of 1.25%.

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 >>



More from Zacks Mutual Fund Commentary

You May Like