Real Estate Sector to Scale New Heights: 4 Funds to Buy

7 Şubat 2018
Real Estate Sector to Scale New Heights: 4 Funds to Buy

The construction industry in the United States is expected to grow by leaps and bounds in 2018. Also, a ratio which measures the optimism surrounding the sector’s growth hit a record high recently. Further, hiring in the sector has been unusually high over the last one year.

Meanwhile, a leaked draft of President Trump’s infrastructure spending plans indicate that the GOP will prioritize improving the existing roads and highways as well as non-federally funded utilities in the country.

Lastly, strong economic growth and recent tax reforms continue to boost the industry’s growth. Such a scenario quite naturally calls for investing in mutual funds which invest in construction companies.

Construction Spending Hits a Record High

In November 2017, construction spending increased, surpassing expectations. The figure came in at $1.26 trillion, logging an annual growth rate of 2.4%. Such strength in spending was the result of increased investments across real estate, commercial and residential projects. Further, spending on private construction remained high and invited gains to the industry.

To top it all, firms operating in the space are also looking to expand their workforce as evident from high hiring. Even at a time when the country was ravaged by harsh winters, the sector added 30,000 jobs.

Moreover, the ratio which measures the industry optimism over business growth hit a record high. Such optimism is backed primarily by business-friendly economic conditions and overall growth. Also, economists have stated that construction in the office market, transportation and retail will see a boom this year.

U.S. Construction to Get a Boost from Infrastructure Spending

Optimism regarding growth of the construction industry surged post Trump’s victory as one of his key priorities was infrastructure investment. Although spending on government projects has declined 3.4% year to date, the figure is still close to an increase of 3% — the highest monthly gain in three years – that it hit in October 2017. This is courtesy of higher spending at the federal, state and local levels.

Increased infrastructure spending was the cornerstone of Trump’s presidential campaign. As a matter of fact, he had proposed a $1 trillion infrastructure spending financed by new tax credits to encourage private equity investors. He plans to deploy $200 billion in federal money over the next decade to “incentivize another $800 billion in spending from state and local authorities and private entities.”

Home Building Hits Record High

The year started with a disappointing reading for housing starts. Per the Department of Commerce, housing starts declined 8.2% in December — its largest percentage drop since November 2016. However, analysts see such a downturn as temporary. Further, housing possibly felt the chill from December’s brutally low temperatures, which is only a seasonal fluctuation.

Also, the 2.4% increase in homebuilding to 1.202 million units in 2017 is one important point to be noted. This is the highest level recorded in a decade. Strong economic growth, a robust labor market and tax cuts are continuing to bolster the housing industry.

4 Best Mutual Funds to Buy

Given such positives, we have highlighted four industrial mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and one-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).

Fidelity Advisor International Real Estate Fund Class I (FIRIX – Free Report) seeks to invest primarily in foreign securities. The fund invests a bulk of its assets in securities of companies involved in the real estate industry as well as real estate-related investments. It allocates investments across the globe in different countries and regions.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund has returned 8.4% over the three-year and 8.4% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds,.

The Fidelity Advisor International Real Estate Fund, as of the last filing, allocates their assets in top two major groups, namely Foreign Stock and Intermediate Bond.

FIRIX has a Zacks Rank #1 and an annual expense ratio of 0.95%, which is below the category average of 1.33%. The fund has three and one-year returns of 8.8% and 30%, respectively.

John Hancock II Real Estate Securities 1 (JIREX – Free Report) seeks appreciation of capital and income over the long term. JIREX invests primarily in equity securities of companies engaged in operations related to real estate sector, which also include REITs. Also, JIREX 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 has returned 5.3% over the three-year and 8.9% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds.

JIREX has a Zacks Rank #1 and an annual expense ratio of 0.79%, which is below the category average of 1.23%. The fund has three and one-year returns of 0.8% and 2.3%, respectively.

CGM Realty (CGMRX – Free Report) invests the lion’s share of its assets in securities of companies within the real estate domain, irrespective of their market capitalization. CGMRX may invest not more than one-fifth of its assets in securities of companies from sectors other than real estate. It may also invest in debt securities throughout the wide range of credit qualities and maturities in securities of companies located all around the globe.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund has returned 10% over the three-year and 12.3% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

The CGM Realty Fund, as of the last filing, allocates their assets in top two major groups, namely Large Value and Intermediate Bond.

CGMRX has a Zacks Rank #1 and an annual expense ratio of 0.99%, which is below the category average of 1.09%. The fund has three and one-year returns of 10.2% and 23.6%, respectively.

Principal Real Estate Securities R5 (PREPX – Free Report) seeks growth of total returns. PREPX invests the lion’s share of its assets in equity securities of real estate companies. The fund focuses on value equity securities.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund has returned 6.2% over the three-year and 8.8% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds,

PREPX has a Zacks Rank #2 and an annual expense ratio of 0.00%, which is below the category average of 1.23%. The fund has three and one-year returns of 1.7% and 5%, respectively.

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