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JIREX or FRESX: Which Real Estate Mutual Fund to Buy?

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Per the latest joint report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, building permits for future home construction surged 14.4% in May to a rate of 1.220 million. Such a rebound in the metric from the lows it hit in April has revived expectations that America’s housing market will lead the economic recovery in the coming months.

Meanwhile, sales of new U.S. single-family homes rose more than expected last month. The Commerce Department reported that new home sales in the country increased 16.6% to 676,000 units in May.

For investors looking to park their money in the real estate sector, mutual funds are the cheapest and most convenient options. This category of funds offers solid protection against inflation. The real estate sector has recently seen tough times but the presence of this investment vehicle adds stability to a portfolio. Usually, volatility in property prices is far less than the extent experienced by stocks. Adding such funds to a widely diversified portfolio would increase returns, while significantly reducing the associated risk.

Meanwhile, the Real Estate Select Sector SPDR Fund (XLRE) has gained 22.7% over the past three months despite extreme market volatility. So, investing in real mutual funds seems prudent as of now. Let us look at two of the best funds from the space and find out which one is a better investment.

John Hancock Funds II Real Estate Securities Fund Class 1 (JIREX - Free Report)

The 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 like common stocks, preferred stocks 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 are 2.9% over a three-year period and 4.5% over a five-year period. To see how this fund performed compared with its category, and other #1 and 2 Ranked Mutual Funds, please click here.  

John Hancock Funds II Real Estate Securities Fund Class 1, as of the last filing, allocates its assets in the top two major group; Foreign Bond and High Yield Bond. Further, as of the last filing, Equinix Inc. and Prologis Inc. were the top holdings in JIREX.

This Zacks Mutual Fund Rank #1 (Strong Buy) fund was incepted in October 2005 and is managed by John Hancock. JIREX carries an expense ratio of 0.80% and requires a minimal initial investment of $0.

Fidelity Real Estate Investment Portfolio (FRESX - Free Report)

The fund aims for better-than-average income and long-term capital appreciation. The fund invests the majority of its assets in companies primarily engaged in the real-estate industry and other real-estate-related investments. It mostly invests in common stocks.

This Sector-Real Estate product has a history of positive total returns for over 10 years.  Specifically, the fund’s returns are 1.3% over a three-year period and 3.8% over a five-year period. To see how this fund performed compared with its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Real Estate Investment Portfolio, as of the last filing, allocates assets in the top two major groups, Large Value and High Yield Bond. Further, as of the last filing, Prologis Inc. and Digital Realty Trust Inc. were the top holdings for FRESX.

This Zacks Rank #1 (Strong Buy) fund was incepted in November 1986 and is managed by Fidelity. FRESX carries an expense ratio of 0.74% and requires a minimal initial investment of $0.

To Conclude

While both JIREX and FRESX are buy-rated funds, upon taking a closer look, we find that the former is a clear winner. Meanwhile, both the funds are dirt cheap. However, the administrative and other operating expenses of JIREX are higher than FRESX’s.

Furthermore, JIREX offers lower risk compared to FRESX. Notably, FRESX has a three-year beta of 0.73 compared with JIREX’s 0.68. Therefore, JIREX is the fund that one must bet on given its mildly lower risk and consistent returns. At a time when the markets are treading on a wobbly path, low risk and consistent returns are the ways forward.

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