Markets

3 Funds to Bank on Continued Rebound in Housing Starts

The real estate market has demonstrated a rather stunning rebound over the past few weeks. This is despite the continued rise in new coronavirus cases and the pandemic’s impact on the job market especially during the early months of its onset in the country.

The rebound was mostly propped up by the Federal Reserve’s low interest rates, which have driven mortgage rates to record lows. In addition, positive data on the front of housing starts is also promising. Homebuyers’ interest in the U.S. housing market during this period of public health crisis is, therefore, justified.

Let us, thus, consider a couple of real estate mutual funds for investment.

Housing Starts Continue to Bounce Back

According to the Commerce Department last week, housing starts occurred at a seasonally adjusted annual rate of 1.19 million in June. The figure represents a 17% rise from May.

Between May and June, permitting activity for newly built homes increased 2.1% to a seasonally adjusted annual rate of 1.24 million. The optimistic figure indicates geared up activity in the housing market.

Mortgage Rates At Record Low

According to the latest data released by Freddie Mac last week, the 30-year fixed-rate average slipped to a historic low of 2.98%, marking a rate below 3% for the first time in 50 years. The reported mortgage rate is the lowest since Freddie Mac started to track mortgage rates in 1971. The rate averaged 3.81% a year ago.

A major reason behind such low mortgage rates is the near-zero federal funds rate. In June, the Federal Reserve decided to keep the benchmark rates unchanged (as decided by the central bank in mid-March) to put the U.S. economy back on track. The rates, which are currently in the range of 0% to 0.25%, are expected to stay at this level for the next two and a half years.

3 Funds to Buy

We have, therefore, selected three mutual funds that stand to gain from the strength in U.S. housing market. All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). In addition, the minimum initial investment for these funds is within $5,000.

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).

TIAA-CREF Real Estate Securities Fund Retail Class TCREX aims for long-term total return via both capital growth and current income. The fund mostly invests in equity securities of companies primarily engaged in or related to the real estate industry. The fund may also invest up to 15% of its assets in real estate securities of non-U.S. issuers and up to 20% of its assets in equity and debt securities of issuers that are not engaged in or related to the real estate industry.

This Zacks sector – Real Estate has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

TCREX has an annual expense ratio of 0.81%, which is below the category average of 1.20%. It has returned 6.2% over the past three years. The fund has a minimum initial investment of $2500 and carries a Zacks Mutual Fund Rank #1.

DWS RREEF Real Estate Securities Fund - Class A RRRAX aims for long-term capital appreciation and current income. The non-diversified fund invests the majority of its assets in equity securities of real estate investment trusts and real estate companies. The fund may also invest some of its assets in other types of securities which may consist of short-term securities, bonds, notes, securities of companies not principally engaged in the real estate industry and other similar securities.

This Zacks sector – Real Estate has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

RRRAX has an annual expense ratio of 0.98%, which is below the category average of 1.20%. It has returned 2.4% over the past three years. The fund has a minimum initial investment of $1000 and carries a Zacks Mutual Fund Rank #1.

Manning & Napier Real Estate Series Class S MNREX aims for high current income and long-term capital growth by investing primarily in companies in the real estate industry. MNREX's investment in debt securities is subject to a limit of 20% of  its assets.

This Zacks sector – Real Estate has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

MNREX has an annual expense ratio of 1.10%, which is below the category average of 1.20%. It has returned 2.1% over the past three years. The fund has a minimum initial investment of $2000 and carries a Zacks Mutual Fund Rank #2.

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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.

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