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3 Funds to Buy as U.S. Housing Gathers Steam

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Homebuilding in the United States sprung back to life in November on an upswing in multi-family housing starts. While housing starts for November rose to its highest levels in the last four months, building permits hit a seven-year high.

Further, robust labor market conditions and increase in millennials will surely improve conditions for the housing market. Under such encouraging conditions, investing in mutual funds from the real estate sector seems prudent.

Housing Starts and Building Permits Rise in November

Per the latest joint report by U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts in the United States increased to its highest level in November since August. The metric rose at a seasonally adjusted annual rate of 3.2% to 1,256,000.  This increase was achieved on the back of a surge in multifamily home building.

Further, starts for the multifamily housing segment increased 22.4% to 432,000 units last month. On the other hand, building permits for the month of November rose 5% to 1,328,000 according to the report. Permits for the construction of multi-family houses increased 14.8% in November to 480,000 units. Also, the stock of housing under construction registered an uptick of 0.7%.

Taking a closer look, the housing industry is actually reeling under the pressure of extreme paucity of skilled labor amid rising material prices. But, most of the economic indicators from the sector have been positive last month. This indicates that the segment will buck the current trend and bounce back in the days to come.

Why Invest in Real Estate?

Investing in the real estate sector adds stability to a portfolio, mainly because the volatility in property prices is far less than what is experienced by stocks. Hence, investors willing to hold long-term positions would do well to consider real estate mutual funds as they add stability and bring steady returns. This category of funds also offers superior protection against inflation.

3 Best Choices

Given such positive circumstances, we have highlighted three real estate mutual funds that are poised to gain in the near future. 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 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 Real Estate Income A (FRINX - Free Report) invests heavily in debt and mortgage-backed securities of real estate companies, and preferred and common stocks of REITs. FRINX invests a bulk of its assets in securities of real estate companies and other real estate related investments.

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

FRINX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.02%, which is below the category average of 1.21%.

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.

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 5.1%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

ARYVX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.13%, which is below the category average of 1.30%.

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 6.8% and 10.5%, 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 #2 and an annual expense ratio of 1.07%, which is below the category average of 1.21%.

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