Buy These 4 Mutual Funds to Tap the Booming US Housing Space – November 20, 2020

Even as the coronavirus pandemic wreaks havoc on the different sectors of the US economy, the housing market has emerged as an exception so far. Despite the slump in the initial months of the pandemic (April-May), homebuilders are seeing strong demand for single-family homes as more and more people prefer to shift to the low density suburbs. In fact, several economic data reflected the health of the housing market, which is well-supported by the record low mortgage rate.

Under such circumstances, investing in mutual funds with significant exposure to homebuilding companies seems prudent.

Housing Starts Spike in October

On Nov 18, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development reported that housing starts rose 4.9% to a seasonally adjusted annual rate of 1.530 million units in October. The figure surpassed the Zacks Consensus Estimate of 1.461 million units and September’s revised figure of 1.459 million units. Single-family housing starts, which constitute the major portion of the U.S. housing market, spiked 6.4% to a seasonally-adjusted annual rate of 1.179 million units in October. The number is well above September’s revised level of 1.108 million units. The Northeast, South, the mountainous regions and the sparsely populated areas of the West witnessed a recovery in homebuilding activities as Americans are constantly shifting their abode toward the less populated areas.

Builder Confidence Hits Record High in November

The pandemic-led migration trend also lifted homebuilders’ sentiments. Per a Housingwire article, homebuilder confidence touched a record high of 90 in November. The National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index now climbed for the third straight month in a row and reached its highest level in its history of 35 years. In the same article, NAHB Chairman Chuck Fowke said, “historically low mortgage rates, favorable demographics and an ongoing suburban shift for home buyer preferences have spurred demand and increased new home sales by nearly 17% in 2020 on a year-to-date basis.” Hence prospects for the US housing market’s future are even brighter than expected.

Existing Home Sales Scale to a 14-Year High

According to a separate report released by the National Association of Realtors on Nov 19, existing-home sales continued to jump in October, marking its fifth consecutive monthly gain. Total existing-home sales rose 4.3% to an annualized rate of 6.85 million in October, surpassing the consensus estimate of 6.45 million units as well as September’s revised reading of 6.57 million units. The organization also reports that unsold inventory stoops to an all-time low of 2.5-month supply at the current sales pace, which is down from 2.7 months in September and lower than the 3.9-month figure recorded in October 2019.

Mortgage Rate Sinks to Record Low

Going by Freddie Mac’s report, the 30-year fixed mortgage plunged to a new record low for the week ending Nov 19, averaging 2.72%. This is the 13th time this year that the 30-year fixed-rate mortgage hit a record low. And with the pandemic still hindering plans of an economic rebound, the Federal Reserve plans to keep rates unchanged, even through 2021. Hence, with the interest rate now standing near zero (0.00–0.25%), mortgage rates are also expected to remain at a historically low level. This record-low mortgage rate supported the shift to suburbs and motivated homebuyers to move with ease.

4 Funds to Buy

Given the positive housing data, we shortlisted four mutual funds from the space, which currently carry 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 the reasons for parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Advisor Real Estate Income Fund Class A (FRINX Free Report) aims for higher-than-average income. As a secondary objective, the fund seeks capital growth. FRINX invests majority of its assets in common stocks of REITs as well as 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 1.7% and 4.3% 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.

FRINX has an annual expense ratio of 1.01%, which is below the category average of 1.19%.

Cohen & Steers Real Estate Securities Fund, Inc. Class Z (CSZIX Free Report) targets total returns by investing in securities of real estate companies. This non-diversified fund invests majority of its assets in income-producing common stocks and other similar equity securities.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 3.9% and 5.3% over the past three and five years each. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

CSZIX has an annual expense ratio of 0.77%, which is below the category average of 1.19%.

MFS Global Real Estate Fund Class R6 (MGLRX Free Report) looks for total returns. The fund invests majority of assets in US equity securities 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 4.9% and 5.9% 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.

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

TIAA-CREF Real Estate Securities Fund Retirement Class (TRRSX Free Report) aims for long-term total returns through both capital appreciation and current income. The fund invests most of its assets in the securities of companies that are principally engaged in or related to the real estate industry including those that own significant real-estate assets.

This Zacks sector – Real Estate product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 5.3% and 6% 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.

TRRSX has an annual expense ratio of 0.75%, which is below the category average of 1.19%.

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