Fidelity Real Estate and Income Fund
Click to Enlarge Real estate investment trusts had a great start to the year thanks to an existing tailwind in the housing market coupled with the added stability of low interest rates. In what closely began to resemble the run-up we witnessed in these stocks during 2006, the rally came to an abrupt end after the Fed’s May 21 tapering comments. Since then, the iShares Dow Jones U.S. Real Estate Fund (IYR) has fallen roughly 13.5%, and I believe there could be an excellent buying opportunity setting up in real estate stocks.
However, for conservative income investors, I favor a mix of asset classes concentrated in the real estate sector as opposed to a dedicated basket of stocks. The Fidelity Real Estate and Income Fund (FRIFX) is an actively managed strategy with a current asset allocation of roughly 45% equity, 45% fixed income and 10% cash. It is broken up among common and preferred stock, asset-backed securities and and commercial mortgage-backed securities.
Looking at a comparison, the Fidelity fund did not participate in the large rally to the extent that IYR did, yet it also didn’t participate to the same degree in the decline. This is a slow and steady strategy that yields approximately 4%. In my opinion, this fund is perfect for income investors that can’t stomach the month-over-month price swings in REIT stocks alone, but still want exposure to the sector within their portfolio.
FRIFX also is a no-load fund that charges 0.89% in expenses.