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3 Real Estate Funds to Gain From a Stable US Housing Sector

Nitish Marwah

Per the joint report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, homebuilding in the United States rebounded in the month of October as permits for building new homes surged to its highest settlement since 2007. The metric came in at 1.482 million units in the month.

Further, single-family authorizations increased 0.8% to 918,000 in October from the prior month. Also, authorization of units in buildings with five units or more came in at 505,000 in the month. Authorizations for buildings with five or more units increased to 524,000 in November.

Meanwhile, per the latest reports by U.S. homebuilder confidence jumped to a 20-year high in December. The National Association of Home Builders’ Housing Market Index increased to 765 in December, to its highest level since 1999.

Coming to new home sales, the metric increased 1.3% in November to 719,000 units. The report also stated that in the past three months, the metric averaged 720,000, which is the highest pace in the past 12 years.

Economists have stated that increased demand for new homes has been propelled by cheap borrowing costs, the historically low levels of unemployment and stronger income growth.

Further, Federal Reserve’s move to lower interest rates has been supporting the U.S. economy. This is evident from the fact that the country’s housing sector exhibits strength at a time when the global economy is reeling under pressure from trade tensions and weak economic fundamentals.

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 also offers solid protection against inflation. The real estate sector has recently seen tough times but the presence of this investment vehicle generally 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.

3 Best Choices

Given such circumstances, we have highlighted three real estate mutual funds that are poised to gain from such factors. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, the 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).

Cohen & Steers Real Estate Securities Fund, Inc. Class A CSEIX invests the majority of its assets in common stocks and other equity securities issued by real estate companies.

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 11.7% and 9.7%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

CSEIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.14%, which is below the category average of 1.238%.

Davis Real Estate Fund Class A RPFRX aims for total return through a combination of income and growth. The fund’s adviser applies the Davis Investment Discipline to invest the majority of the fund’s assets in securities issued by companies operating in the real estate industry. The fund mostly invests in common stocks of U.S.-based companies and even in non-U.S. companies.

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 10.9% and 8.2%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

RPFRX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.97%, which is below the category average of 1.23%.

John Hancock Funds II Real Estate Securities Fund Class 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 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 over the three and five-year benchmarks are 12.1% and 8.6%, 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 #2 and an annual expense ratio of 0.80%, which is below the category average of 1.23%.

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Click to get this free report Get Your Free (CSEIX): Fund Analysis Report Get Your Free (JIREX): Fund Analysis Report Get Your Free (RPFRX): Fund Analysis Report To read this article on Zacks.com click here. Zacks Investment Research