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3 Real Estate Mutual Funds to Grab on Falling Interest Rates
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Real estate has had a decent year. The S&P 500 Real Estate Select Sector SPDR (XLRE) advanced 10.8% year to date as of Oct. 8. The sector declined till the second week of July. However, as talks started surfacing about the central bank introducing rate cuts in September, the sector has witnessed a turnaround of sorts. The same SPDR has grown 12.8% since July 10.
This optimism is notably visible if one considers the mortgage rates. These have slightly increased after initially declining since rate cuts were announced. The 30-year fixed-rate mortgage was at 6.43% on Oct. 7, up 14 basis points from last week.
The National Association of Realtors (“NAR”) expects the 30-year fixed mortgage rate to average 6.9% in its recent quarterly forecast published in June. This is an upward revision from its previous forecast of 6.7%. NAR has also revised its forecast upward for the fourth quarter to 6.5-6.7%. It expects that the second half of 2024 will witness higher home sales and price stability.
Elevated mortgage rates have reduced affordability and hence, dampened home sales. It has also put pressure on existing homeowners with adjustable-rate mortgages who have seen their monthly payments go through the roof. Overall confidence in the housing market remains fairly subdued, according to the NAHB/Wells Fargo Housing Market Index (HMI). The index rose to 41 in September from 39 in August.
Yet, with the first rate cut announced and more expected in the calendar year, mortgage rates should ease off from their current levels. Even in case of an unlikely recession, a higher inventory of homes would bring prices further down, luring first-time buyers. This would also mean that real estate would become a viable investment option.
In the funds market, in addition to individual REITs, investors can purchase shares of exchange-traded funds or mutual funds that hold one or more REITs in their portfolios. Some portfolios in this category also invest in real estate operating companies. These are called real estate mutual funds.
Real estate mutual funds provide much-required stability and growth potential. Hence, astute investors should consider such funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Our Picks
We have selected three real estate mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive 3-year and 5-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio.
Westwood Real Estate Income (KIFAX - Free Report) invests primarily in income-producing securities of companies in the real estate sector. KIFAX invests in securities of companies in real estate investment trusts, master limited partnerships and other real estate firms.
John D. Palmer has been the lead manager of KIFAX since April 30, 2021. Three top holdings for KIFAX are 8% in Pebblebrook, 4% in Saul Centers and 4% in EPR Properties.
KIFAX’s 3-year and 5-year annualized returns are 2% and 3.7%, respectively. The fund has a net expense ratio of 1.27%. KIFAX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Series Real Estate Income (FSREX - Free Report) invests primarily in preferred and common stocks of real estate investment trusts, debt securities of real estate entities and commercial and other mortgage-backed securities, with a focus on lower-quality debt securities.
Bill Maclay has been the lead manager of FSREX since March 30, 2019. Three top holdings for FSREX are 2.1% in AGNC Investment, 1.7% in Annaly Capital and 1.7% in DigitalBridge.
FSREX’s 3-year and 5-year annualized returns are 1.8% and 4.4%, respectively. The fund has a net expense ratio of 0.01%. FRESX has a Zacks Mutual Fund Rank #1.
T. Rowe Price Real Estate (TRREX - Free Report) invests primarily in equity securities of real estate companies. It usually maintains a significant portion of assets in real estate investment trusts.
Gregg Korondi has been the lead manager of TRREX since Jan. 1, 2024. Three top holdings for TRREX are 7.9% in Equinix, 7.9% in American Tower and 7.8% in Prologis.
TRREX’s 3-year and 5-year annualized returns are 0.8% and 4.1%, respectively. The fund has a net expense ratio of 0.87%. TRREX has a Zacks Mutual Fund Rank #2.
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3 Real Estate Mutual Funds to Grab on Falling Interest Rates
Real estate has had a decent year. The S&P 500 Real Estate Select Sector SPDR (XLRE) advanced 10.8% year to date as of Oct. 8. The sector declined till the second week of July. However, as talks started surfacing about the central bank introducing rate cuts in September, the sector has witnessed a turnaround of sorts. The same SPDR has grown 12.8% since July 10.
This optimism is notably visible if one considers the mortgage rates. These have slightly increased after initially declining since rate cuts were announced. The 30-year fixed-rate mortgage was at 6.43% on Oct. 7, up 14 basis points from last week.
The National Association of Realtors (“NAR”) expects the 30-year fixed mortgage rate to average 6.9% in its recent quarterly forecast published in June. This is an upward revision from its previous forecast of 6.7%. NAR has also revised its forecast upward for the fourth quarter to 6.5-6.7%. It expects that the second half of 2024 will witness higher home sales and price stability.
Elevated mortgage rates have reduced affordability and hence, dampened home sales. It has also put pressure on existing homeowners with adjustable-rate mortgages who have seen their monthly payments go through the roof. Overall confidence in the housing market remains fairly subdued, according to the NAHB/Wells Fargo Housing Market Index (HMI). The index rose to 41 in September from 39 in August.
Yet, with the first rate cut announced and more expected in the calendar year, mortgage rates should ease off from their current levels. Even in case of an unlikely recession, a higher inventory of homes would bring prices further down, luring first-time buyers. This would also mean that real estate would become a viable investment option.
In the funds market, in addition to individual REITs, investors can purchase shares of exchange-traded funds or mutual funds that hold one or more REITs in their portfolios. Some portfolios in this category also invest in real estate operating companies. These are called real estate mutual funds.
Real estate mutual funds provide much-required stability and growth potential. Hence, astute investors should consider such funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Our Picks
We have selected three real estate mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive 3-year and 5-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio.
Westwood Real Estate Income (KIFAX - Free Report) invests primarily in income-producing securities of companies in the real estate sector. KIFAX invests in securities of companies in real estate investment trusts, master limited partnerships and other real estate firms.
John D. Palmer has been the lead manager of KIFAX since April 30, 2021. Three top holdings for KIFAX are 8% in Pebblebrook, 4% in Saul Centers and 4% in EPR Properties.
KIFAX’s 3-year and 5-year annualized returns are 2% and 3.7%, respectively. The fund has a net expense ratio of 1.27%. KIFAX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Series Real Estate Income (FSREX - Free Report) invests primarily in preferred and common stocks of real estate investment trusts, debt securities of real estate entities and commercial and other mortgage-backed securities, with a focus on lower-quality debt securities.
Bill Maclay has been the lead manager of FSREX since March 30, 2019. Three top holdings for FSREX are 2.1% in AGNC Investment, 1.7% in Annaly Capital and 1.7% in DigitalBridge.
FSREX’s 3-year and 5-year annualized returns are 1.8% and 4.4%, respectively. The fund has a net expense ratio of 0.01%. FRESX has a Zacks Mutual Fund Rank #1.
T. Rowe Price Real Estate (TRREX - Free Report) invests primarily in equity securities of real estate companies. It usually maintains a significant portion of assets in real estate investment trusts.
Gregg Korondi has been the lead manager of TRREX since Jan. 1, 2024. Three top holdings for TRREX are 7.9% in Equinix, 7.9% in American Tower and 7.8% in Prologis.
TRREX’s 3-year and 5-year annualized returns are 0.8% and 4.1%, respectively. The fund has a net expense ratio of 0.87%. TRREX has a Zacks Mutual Fund Rank #2.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>