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U.S. Construction Spending Remains Upbeat: 3 Fund Choices


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The U.S. Commerce Department reported on Oct 1 that domestic construction spending picked up in the month of August. Such an increase was achieved on the back of higher government spending, which touched its highest level since 2009. Further, a steady increase in expenditure on new federal, state and local construction projects made up for the decline in private construction activity in August.

Although the metric came in below expectations, it showed a steep rise on a year-over-year basis. This indicates that construction activity in the United States remained largely unperturbed by increasing geopolitical tensions. Under such encouraging conditions, investing in mutual funds with significant exposure to construction companies seems judicious.

Construction Activity Nudges Up in August

Construction spending in the United States increased 0.1% in August. The figure came in lower than the consensus estimate of an increase of 0.4%. However, the August figure increased 6.5% from the same period last year. In fact, through the first eight months of the year, spending was 5.3% higher than in the same period of 2017.

Residential and non-residential construction spending declined 0.7% and 0.2%, respectively, in August. However, these declines were offset by a robust 2% monthly gain in public construction spending, which hit a nine-year high.

Factors Supporting Growth

In August, expenses on federal government construction programs increased 5.9%, to hit its highest level in the last 10 months. Local and state government construction spending surged 1.7%, to its highest level since March 2009.

From the non-residential domains, only construction outlay for office buildings moved up 0.8% month over month in August. Meanwhile, builders continue to witness robust demand for new homes, buoyed by a steady increase in the number of job additions as well as income growth. Sales of new single-family homes in the United States rebounded in August, exceeding the prior month's reading by 3.5%.

3 Best Choices

We have, thus, selected three real estate mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. 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 ).

Principal Real Estate Securities R5  PREPX seeks growth of total returns. PREPX invests the majority of its assets in equity securities of real estate companies and focuses on value equity securities.

This Sector - Real Estate product has a track of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 9.8% and 11.3%, 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 #1 and an annual expense ratio of 1.07%, which is below the category average of 1.21%.

DFA Real Estate Securities Portfolio Institutional Class  DFREX invests in marketable equity securities of companies engaged in ownership, management, development, construction and sale of residential, commercial as well as industrial real estate. DFREX usually invests in equity securities of companies in certain real estate investment trusts as well as companies involved in residential construction.

This Sector - Real Estate product has a track of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 9.9% and 10.7%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds,  please click here .

DFREX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.18%, which is below the category average of 1.21%.

John Hancock II Real Estate Securities 1  JIREX 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 6.2% and 9.9%, 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 #1 and an annual expense ratio of 0.79%, which is below the category average of 1.21%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Mutual Funds
Referenced Symbols: PREPX , DFREX , JIREX



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