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4 Mutual Funds to Buy on Bright Housing Outlook

The housing market in the U.S. has shown signs of improvement and is expected to sustain the momentum in the near future. Factors including favorable labor market conditions, growing demand and still affordable housing prices should continue to drive the sector. Meanwhile, mutual funds related to this sector succeeded in witnessing a strong rebound, despite losing heavily since the start of 2016, on the back of an improving housing market.

According to Morningstar, a rise of 8.9% in the past three-months has helped real estate mutual funds to register a 3.9% gain in the year-to-date frame. Against this backdrop, investing in mutual funds related to the sector, which also have strong fundamentals, may prove to be profitable for investors.

Improving Housing Market

The U.S Department of Commerce recently reported that construction spending increased 0.3% in March to a seasonally adjusted annual rate of $1,137.5 billion after increasing 1% in February against the estimated 0.5% decline. According to the report, a 1.5% increase in spending in residential construction played a huge role in boosting construction spending. While construction spending was up 8% year over year in March, spending on residential construction increased 7.6% during the same period.

Moreover, residential investment surged 14.8% year over year during the first quarter compared with the previous quarter’s increase of 10.1%, according to the “advance estimate” of the commerce department. Separately, the National Association of Realtors (NAR) reported that existing home sales for the month of March was 5.33 million units, reflecting an increase of 26,000 units from the revised level of 5.07 million units for February. In a separate report, NAR said that the Pending Home Sales Index increased 1.4% from February to 110.5 in March, reflecting the second consecutive monthly rise.

Additionally, the S&P/Case-Shiller Home Price Index revealed that the 20-City composite index, the leading measure of U.S. home prices increased 0.2% in February after remaining flat in both December and January. The index also rose 5.4% year over year.

Bright Outlook

Economists who participated in the National Association of Home Builders (NAHB) Spring Construction Forecast Webinar predicted that single-family constructions may jump 14% from 2015 to 812,000 units this year. Moreover, single-family constructions are expected to surge another 19% next year. They also projected 3.3% and 1.3% gains in Residential remodeling activity in 2016 and 2017, respectively. Robert Dietz, NAHB Chief Economist said: "2016 should be the first year since the Great Recession in which the growth rate for single-family production exceeds that of multifamily. And we see single-family growth accelerating in 2017 as the supply side chain mends and we can expand production."

Separately, as per the Freddie Mac forecast, total home sales may hit the highest level of 5.9 million units in 2016 in nearly a decade. Sales were estimated to increase further to 6.2 million units next year. Freddie Mac’s deputy chief economist, Len Kiefer recently said: "The trends are nearly all positive… Lower rates are helping to support homebuyer affordability across the country, for the moment outweighing the impact of higher house prices."

4 Real Estate Funds to Buy Now

On the back of improving housing market conditions and an encouraging outlook, we highlight four real estate mutual funds that either carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). 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.

Moreover, these funds have strong year-to-date, one-year and three-year annualized returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and carry no sales load.

Fidelity Real Estate Investment Portfolio (FRESX) primarily focuses on acquiring common stocks of companies involved in operations related to the real estate domain.

Currently, FRESX carries a Zacks Mutual Fund Rank #1. The product has year-to-date, one-year and three-year annualized returns of 4.7%, 11.5% and 8.6%, respectively. Annual expense ratio of 0.78% is lower than the category average of 1.28%.

AMG Managers Real Estate Securities (MRESX) is expected to maintain a portfolio of 40–60 stocks of real estate companies.

Currently, MRESX carries a Zacks Mutual Fund Rank #2. The product has year-to-date, one-year and three-year annualized returns of 4.2%, 9.6% and 9.1%, respectively. Annual expense ratio of 1.16% is lower than the category average of 1.28%.

T. Rowe Price Real Estate (TRREX) invests the lion’s share of its assets in real estate companies including REITs.

Currently, TRREX carries a Zacks Mutual Fund Rank #2. The product has year-to-date, one-year and three-year annualized returns of 3.5%, 8% and 9%, respectively. Annual expense ratio of 0.76% is lower than the category average of 1.28%.

TIAA-CREF Real Estate Securities Retail (TCREX) invests a major portion of its assets in securities of real estate related companies.

Currently, TCREX carries a Zacks Mutual Fund Rank #2. The product has year-to-date, one-year and three-year annualized returns of 3.4%, 7.2% and 7.8%, respectively. Annual expense ratio of 0.83% is lower than the category average of 1.28%.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank.


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