4 Funds to Buy as US Homebuilding Accelerates in September – October 21, 2020

The U.S. housing sector has emerged as one of the bright spots, while the economy continues to struggle to emerge from the coronavirus pandemic-induced slump. The industry has witnessed a solid V-shaped recovery since May and may soon surpass its pre-pandemic levels. In fact, record-low mortgage rates and people migrating to the suburbs and low-density areas have boosted the space.

On Oct 20, the Commerce Department reported that housing starts increased 1.9% to a seasonally-adjusted annual rate of 1.415 million units in September, surpassing the previous month’s revised figure of 1.388 million units. New home construction activities rose sharply in the West, South and Northeastpart of the country.

Additionally, building permits increased 5.2% to 1.553 million units in September, surpassing the consensus estimate of 1.522 million and the revised figure of 1.476 million for the month before. Single-family building permits rose 7.8% to a rate of 1.119 million units. The Commerce Department’s report also underscored that building permits and housing completions are scaling levels last seen in 2007.

Earlier on Oct 19, the National Association of Home Builders (NAHB) reported that its monthly confidence index edged up two points to 85 in October. The index reading has now hit a record high for the third month in a row and the pandemic-led remote working trend has further boosted demand for single-family homes. As more companies are trying to implement remote working as the permanent mode of operation, employees are looking for low-density areas to get more room for home offices and schooling.

The low interest rate is just an added bonus in such a scenario. According to Freddie Mac’s report, the 30-year fixed-rate mortgage averaged 2.81% for the week ending Oct 15, a record low for the 10th time this year. This historically-low borrowing cost has fueled the housing sector despite the economic turbulence.

4 Top Funds to Buy

These favorable data from the housing market underlines robust growth in this space. The sector has not only held up strong against the coronavirus pandemic slump but is also outperforming this year.  Hence, we have shortlisted four mutual funds from the housing space carrying a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.

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 Real Estate Investment Portfolio (FRESX Free Report) fund aims for above-average income and long-term capital growth, which is consistent with reasonable investment risk. This non-diversified fund invests primarily in common stocks. The majority of FRESX’s assets are invested in securities of companies principally engaged in the real estate industry and other real estate-related investments.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 2.6% and 6.1% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FRESX has an annual expense ratio of 0.74%, which is below the category average of 1.19%.

MFS Global Real Estate Fund Class R6 (MGLRX Free Report) aims for total return. The fund invests majority of its assets in equity securities of U.S. and foreign real estate-related investments of any size.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 6% and 8.1% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

MGLRX has an annual expense ratio of 0.90%, which is below the category average of 1.24%.

Neuberger Berman Real Estate Fund Class R6 (NRREX Free Report) aims for total return. Additionally, the fund gives importance to capital appreciation and current income. Majority of this non-diversified fund’s assets are invested in equity securities of real estate investment trusts and real estate companies.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, the fund has returned nearly 7% and 9% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

NRREX has an annual expense ratio of 0.76%, which is below the category average of 1.19%.

DWS RREEF Real Estate Securities Fund – Class S (RRREX Free Report) aims for long-term capital appreciation and current income. Majority of this non-diversified fund’s assets are invested in equity securities of real estate investment trusts and real estate companies.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 4.1% and 5.5% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

RRREX has an annual expense ratio of 0.76%, which is below the category average of 1.19%.

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