by Tom Taulli | May 18, 2011 8:01 am
401k and mutual fund investors know there is no end to the problems with the residential real estate market. In Zillow.com’s recent survey, housing prices fell 3% in the first quarter, which was the worst drop since 2008.
Is the housing market seeing a double dip? Then again, perhaps it never recovered since real estate prices hit a peak in the middle of 2006. They are off about 30%.
But for mutual investors and folks with 401k investments, there may be an opportunity. All markets — real estate, housing or otherwise — eventually come back, right? If anything, the lower prices should help spur demand. There will also be help with the continued economic recovery and gains in employment. What’s more, mutual fund and 401k investors typically have a long-term outlook so any short-term pain in home prices or real estate shouldn’t be that big of a deal.
If you’re looking to invest in real estate via housing mutual funds or other 401k investments, there are a variety of strong fund options to choose from. Here’s a look.
The Cohen & Steers Realty Shares (MUTF:CSRSX[1]) fund has the advantage of experience. It got its start back in the early 1990s. In fact, the portfolio managers — Martin Cohen and Robert Steers – are still at the helm.
They understand that real estate is a local business. As a result, Cohen and Steers analyze regional trends to catch investment opportunities. Top holdings include Simon Property (NYSE:SPG[2]), Equity Residential (NYSE:EQR[3]), Vornado Realty (NYSE:VNO[4]), Public Storage (NYSE:PSA[5]) and Ventas (NYSE:VTR[6]).
Ken Heebner is one of the top stock pickers on Wall Street. Although, he can give his shareholders whip-lash as he will aggressively trade his portfolios.
Interestingly enough, Heebner is also a real estate expert. To this end, he manages the CGM Realty Fund (MUTF:CGMRX[7]), which has $1.8 billion in assets. As should be no surprise, the turnover ratio is a hefty 133%.
Heebner also has a concentrated portfolio (another one of his hallmarks). Consider that there are only 21 stocks.
Despite all this, he knows how to post good returns. For the past year, the fund was up 21.95%. What’s more, Heebner has clocked an average annual growth rate of 20.64% for the decade.
A real estate investment trust (REIT) is a popular structure to own real estate. The prime advantage is that profits are tax-free if it distributes at least 90% of its cash flows as dividends.
Well, Virtus Real Estate Securities (MUTF:PHRAX[8]) mutual fund likes REITs as well. Some of its top holdings include Simon Property Group, Boston Properties (NYSE:BXP[9]), Kimco Realty (NYSE:KIM[10]) and AvalonBay Communities (NYSE:AVB[11]).
What’s more, the fund tends to stay away from riskier types of REITs, such as those that invest in complex mortgages.
When it comes to investing in real estate, the portfolio managers at the Neuberger Berman Real Estate Fund (MUTF:NREAX[12]) take a value approach. And if a stock gets frothy, they will dump it. The turnover ratio is 70%.
The Neuberger Berman also has a relatively small number of securities in its portfolio, usually below 45 or so. This can certainly juice returns – but also increase the overall risk levels.
The Vanguard REIT Index (MUTF:VGSIX[13]) fund, which has $20.3 billion in assets, tracks the MSCI U.S. REIT Index. Actually, it boosts a nice dividend yield of 2.99%.
The MSCI index provides broad diversification in the real estate markets, such as with industrial properties, offices, residential properties, mortgages and retail locations.
Of course, the Vanguard fund has a low expense ratio, at 0.26%.
Tom Taulli’s latest book is “All About Short Selling[14]” and he has an upcoming book called “All About Commodities[15].” You can find him at Twitter account @ttaulli[16]. He does not own a position in any of the stocks named here.
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