Real Estate Funds Rally on Bullish Signals

• ByKevin Baker, TheStreet.com Ratings Senior Financial Analyst
• On 11:58 am EDT, Friday July 31, 2009

TALLAHASSEE, Fla. (TheStreet) -- Real estate funds rallied this week as new-homes sales jumped 11% in June. Existing-home sales rose 3.6%.

For the week ending July 30, the average real estate fund we track gained 3.5%, excluding inverse funds that sell short property stocks.

Competing measurements of housing prices point to a bullish sentiment. The S&P Case-Shiller Index, which reviews prices in 20 metropolitan areas, bottomed out, and the more sensitive Radar Logic RPX Monthly Housing Market Report showed a clear reversal in direction with a two-month increase of 4.8% in the price paid per square foot since late March.

With mortgage applications on the rise and June's median price of existing homes climbing 10.3% since January, Federal Reserve Chairman Ben Bernanke described the real estate recession as "moderating."

The best-performing fund, Direxion Daily Real Estate Bull 3X Shares, is brand new. It popped 14% in the five trading days under review. The fund is 300% leveraged to the daily performance of the MSCI US REIT Index.

The fund's initial REIT weightings are 29% specialized, 25% retail, 17% office, 15% residential, 9% diversified and 5% industrial. Top-performing real estate investment trusts in the index include FelCor Lodging Trust, up 14%; Kilroy Realty, up 13%; CBL & Associates Properties, up 11%; and SL Green Realty up 10%.

The second-best-performing fund is a closed-end fund named DWS RREEF Real Estate Fund. One of its 10 largest holdings, Equity Residential jumped 9.8% in one week. The company, which owns more apartment buildings than any other tradable REIT, reported second-quarter funds from operations of 58 cents a share, beating estimates.

Investors liked that Equity Residential was able to borrow $500 million in a secured loan that should cover all the company's financial commitments through 2010.

Another holding, HCP, up 9.6% for the period, declared another quarterly dividend in a series of payments that haven't declined since 1992. HCP's indicated dividend yield of 7.1% is attractive.

Best-Performing Real Estate Funds for the Week Ending July 30 Fund (Ticker) Rating Fund Type 1 Week Total Return Direxion Daily Real Estate Bull 3x Shares (DRN) U ETF 13.52% DWS RREEF Real Estate Fund Inc (SRQ) E Closed-End 9.80% Cohen & Steers Worldwide Realty Income Fund Inc (RWF) E+ Closed-End 9.11% ProShares Ultra Real Estate (URE) E- ETF 8.33% RMR Real Estate Income Fund (RIF) E+ Closed-End 7.67% Cohen & Steers Premium Income Realty Fund Inc (RPF) E- Closed-End 6.65% Alpine Global Premier Properties Fund (AWP) C- Closed-End 6.37% Cohen & Steers Advantage Income Realty Fund Inc (RLF) E Closed-End 6.33% Denali Fund/The (DNY) D Closed-End 5.88% ProFunds Real Estate UltraSector ProFund (REPSX) E- Open-End 5.75% Source: Bloomberg & TheStreet.com Ratings

With unemployment creeping higher, it remains easier to find a home to buy than a job to pay the mortgage. In aggregate, residential home prices may have been driven down to fair value, but the tough employment environment has excessive quantities of vacant commercial property weighing heavily on this category of property prices. May's reading of U.S. commercial property prices retreated 7.6% from April, according to Moody's. REITs that lean toward residential, and away from commercial, may fare better in the next few months.

For more information, check out an explanation of our ratings.

Buzz up!