Back to top

Image: Bigstock

5 Funds to Make the Most of 3-Month High Housing Starts

Read MoreHide Full Article

Housing starts climbed to their highest level in three months in August. Powering the gains was a significant jump in multifamily housing starts. Recent homebuilder sentiment index was flat, but, registered year-over-year growth. The existing home sales data were also encouraging and the overall viewpoint for the real estate sector remains positive.

Following these gains, the addition of real estate mutual funds to one’s portfolio might be suitable. 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 provide steady returns.

Housing Starts Remain Upbeat

Per Housing and Urban Development Department, privately owned housing starts increased by 9.2% in August from July’s pace to a seasonally adjusted annual level of 1.282 million units. This represents a year-over-year increase of 9.4%. It is also significantly higher than the estimated level of 1.232 million units. Additionally, the figure for July was revised upward to 1.174 million units.

Single-family housing starts increased modestly by 1.9% to a pace of 876,000 units in August. The major factor powering the headline number was a 29.3% jump in multi-family homebuilding to a seasonally adjusted annual pace of 406,000 units.

NAHB Index Above 50

The National Association of Home Builders/Wells Fargo Housing Market Index remained flat at 67 in September. However, the metric represents a three-point increase from the level observed a year ago. Current sales conditions increased from 73 to 74 points. Also, expectations over the next six months rose from 72 to 74 points. Buyer traffic remained unchanged at 49 points.

Robust demand for housing, particularly from Millennials and other newcomers entering the market, is a major reason for the continuing strength in homebuilder confidence. The recently observed fall in lumber prices from the record levels experienced earlier this summer is another major positive for the sector.

Buy These 5 Real Estate Mutual Funds

As discussed above, 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 8.1% in the past six months, turning out to be one of the best performing sectors in the S&P 500. According to Morningstar, the real estate mutual fund posted year-to-date and one-year annualized returns of 0.5% and 3.4%, respectively.

Against this backdrop, we have highlighted five real estate mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). We also 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.

These funds witnessed encouraging returns during their last bull market, and their minimum initial investment is within $5000.

VALIC Company I Global Real Estate (VGREX - Free Report) maintains a diversified portfolio by investing its assets in equity securities of real estate and real estate-related companies. The fund invests around 75% of its assets in securities of foreign companies, including those based in emerging markets.

VGREX carries an expense ratio of 0.86% compared with the category average of 1.22%. Moreover, VGREX requires a minimal initial investment of $0. The fund has one-year annualized returns of 5%.

The fund carries a Zacks Mutual Fund Rank #2. Joe V. Rodriguez is one of the fund managers of VGREX since 2008. Further, as of the last filing, Vonovia is the top holding for VGREX.

JPMorgan Realty Income A  seeks maximization of returns through appreciation of capital and income. URTAX invests the majority of its assets in equity securities of REITs. The fund invests both in equity and mortgage REITs, with around 15% of its assets invested in illiquid holdings.

URTAX carries an expense ratio of 1.18% compared with the category average of 1.24%. Moreover, URTAX requires a minimal initial investment of $1,000. The fund has one-year annualized returns of 4.3%.

The fund carries a Zacks Mutual Fund Rank #2. Jason Ko is one of the fund managers of URTAX since 2009. Further, as of the last filing, Digital Realty Trust is the top holding for URTAX.

T. Rowe Price Real Estate (TRREX - Free Report) invests heavily in equity securities of companies from the real estate industry. TRREX maintains a large part of its assets in equity REITs. The fund seeks appreciation of capital for the long run.

TRREX carries an expense ratio of 0.73% compared with the category average of 1.24%. Moreover, TRREX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 6%.

The fund carries a Zacks Mutual Fund Rank #1. David M. Lee is the fund manager of TRREX since 1997. Further, as of the last filing, AvalonBay Communities is the top holding for TRREX.

Fidelity Real Estate Investment Portfolio (FRESX - Free Report) seeks a high level of income and growth of capital for the long run. FRESX normally invests a huge part of its assets in securities of companies involved mainly in the real estate industry. The fund invests in both U.S. and non-U.S. companies.

FRESX carries an expense ratio of 0.76% compared with the category average of 1.24%. Moreover, FRESX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 6%.

The fund carries a Zacks Mutual Fund Rank #1. Steve J. Buller is the fund manager of FRESX since 1997. Further, as of the last filing, Simon Property Group is the top holding for FRESX.

American Century Global Real Estate Investor (ARYVX - Free Report) invests a huge portion of its assets in securities that are issued by REITs and real estate companies. Although the fund invests mainly in developed markets, it may also invest in emerging markets.

ARYVX carries an expense ratio of 1.12% compared with the category average of 1.22%. Moreover, ARYVX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 5.5%.

The fund carries a Zacks Mutual Fund Rank #1. Steven R. Brown is one of the fund managers of ARYVX since 2011. Further, as of the last filing, Simon Property Group is the top holding for ARYVX.

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 >>