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3 Funds to Benefit From Robust Home Sales

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Per the latest report from the National Association of Realtors, existing home sales in the month of July increased more than estimated. The metric was boosted by a robust labor market as well as low mortgage rates. Such developments indicate that the housing sector in America remains upbeat despite weakness in the global economy.

Meanwhile, the economic index, which measures business trends in the United States, also inched up in July. The Conference Board Leading Economic Index gained 0.5% from June to 112.2 in July.

Further, Ataman Ozyildirim, senior director of economic research at the Conference Board stated that improving housing permits, low levels of unemployment insurance claims and upbeat stocks prices have boosted the economic index. Under such broadly encouraging conditions, considering real estate mutual funds seems prudent.

Existing Home Sales Nudge Up

Federal Reserve’s move to lower interest rates has been supporting the U.S. economy. This is evident from the fact that the country’s housing sector exhibits strength at a time when the global economy reels under pressure from trade tensions and weak economic fundamentals.

The National Association of Realtors reported that the existing home sales rose 2.5% to a seasonally-adjusted annual rate of 5.42 million units in July. The consensus estimate for the period was 5.39 million units.

Meanwhile, June’s reading was also revised to a slightly higher 5.29 million units from 5.27 million units reported earlier. The metric measures sales and prices of existing single-family homes across the country. The reading includes condos as well as co-ops, in addition to single-family accommodations.

Existing home sales constitute about 90% of total home sales in the country. The reading for last month was also higher than the reading for the same period a year earlier — the then highest level in the past 17 months. It is largely expected that Fed’s latest rate cut for the first time since 2008 will boost the housing sector in the days to come.

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).

DFA Global Real Estate Securities Portfolio DFGEX fund aims for long-term capital appreciation. The fund seeks to gain exposure to a wide portfolio of securities of U.S. and foreign companies in the real estate industry. The fund invests with a focus on real estate investment trusts or companies that the advisor evaluates as REIT-like. The fund may pursue its objective by investing in DFA Real Estate Securities Portfolio, DFA International Real Estate Securities Portfolio and in securities of companies operating in the real estate industry.

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 9%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

DFGEX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.24%, which is below the category average of 1.28%.

TIAA-CREF Real Estate Securities Retirement TRRSX fund seeks maximum total returns over the long run through growth of capital and current income. TRRSX invests a large chunk of its assets in companies primarily involved in operations related to the real estate domain. The fund may invest a maximum of 15% of its assets in securities issued by foreign entities.

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 3.9% and 7%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

TRRSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.24%, which is below the category average of 1.28%.

John Hancock II Real Estate Securities 1 (JIREX - Free Report)  fund 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 4% and 8.6%, 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 0.80%, which is below the category average of 1.21%.

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