First-Time Buyers Push Home Sales: 3 Fund Picks

The real estate industry may be putting up average performance at the moment because of the coronavirus outbreak but economic stimulus measures and a surge in first-time homebuyers are positive factors that are certain to boost the industry in the coming months. This is why fund investors seeking an entry point in the real estate industry can consider investing in real-estate mutual funds.

First-Time Homebuyers Accounted for 32% Sales

Sales of existing homes surged considerably in February. At 6.5%, the existing-home sales shot up significantly from January to February to a seasonally-adjusted annual rate of $5.77 million. Of course, one may note that February’s sales aren’t indicative of the effect of the coronavirus pandemic in the country.

Of the reported sales in February, 32% of the transactions were made by first-time buyers. Per the National Association of Realtors2019 Profile of Home Buyers and Sellers, first-time buyers accounted for 33% of home sales annually.In addition, building permits and housing starts increased on an annualized basis, reflecting the housing market’s decent shape.

Therefore once the temporary quarantine and social-distancing measures are lifted, potential homebuyers could flock back to the real estate market in no time.

Fed’s Monetary Stimulus May Buoy Real Estate Demand

Secondly, the Federal Reserve slashed its benchmark interest rates to near-zero level earlier this month in a bid to cushion the economy from taking a massive hit. The current range of rates is 0-0.25% from the previous range of 1-1.25%. Additionally, the central bank’s quantitative easing program comprises purchasing treasury bonds and mortgage debt, backed by government agencies.

This easing is aimed to propel investors to start investing in these safe-haven securities again, which in turn, should support smooth functioning of markets. The Federal Reserve also lowered the rate of emergency lending for banks by 125 basis points to 0.25% and raised the term of loans to 90 days.These measures are bound to reduce mortgage rates ahead, which soared in recent weeks.

3 Funds to Buy

We have, therefore, selected three mutual funds that invest in real estate. All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). In addition, the minimum initial investment for these funds is within $5,000.

We expect these funds to outperform 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).

JPMorgan (NYSE:JPM) Realty Income Fund Class A (URTAX) aims for high total investment return. The fund invests the majority of its assets in equity securities of real estate investment trusts and may invest a smaller portion in illiquid holdings. URTAX is a non-diversified fund.

This Zacks sector – Real Estate has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

URTAX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 1.18%, which is below the category average of 1.22%. It has returned 7.7% over a year. The fund has a minimum initial investment of $1000.

Manning & Napier Real Estate Series Class S (MNREX) invests the majority of its assets in securities of companies operating in the real estate industry. The fund aims for high current income and long-term capital growth.

This Zacks sector – Real Estate has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

MNREX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 1.10%, which is below the category average of 1.22%. It has returned 7.6% over a year. The fund has a minimum initial investment of $2000.

Northern Multi-Manager Global Real Estate Fund (NMMGX) aims for long-term capital growth and current income. The fund invests the majority of its assets in equity securities of real estate companies and those related to the real estate industry. The fund may invest in securities of companies around the world.

This Zacks sector – Real Estate has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

NMMGX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.93%, which is below the category average of 1.28%. It has returned 4.1% over a year. The fund has a minimum initial investment of $2500.

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