3 Mutual Funds to Buy on Booming Construction Activity

By Zacks Equity Research, Zacks Investment Research

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Lately, the construction market in the United States has been one of the top performing sectors. Per the U.S. Chamber of Commerce Commercial Construction Index, 93% of the total contracts in the country would witness a surge in profit margins by 2019. The space has also gained immensely from a steadily developing office real estate market.

Further, broad-based factors like a rise in GDP, record low levels of unemployment, steady job additions and upbeat consumer confidence have been instrumental in propelling the sector’s growth. Thus, investors should make the most of such circumstances and bet on real estate mutual funds.

Real Estate Market Boosted by New Office Developments

Office development in the US witnessed a boom in the recent past. High employment levels have resulted in an increase in the pipeline of office construction projects. Per a report from Knight Frank and JLL, about 11.1 million square feet of new office development took place in first quarter of 2018. Further, the report states that approximately 84.2 million square feet is under development.

If records are anything to go by, total office construction currently makes up 1.7% of total existing inventory. Further, factors like increase in public spending, lower tax rates, improvement in wages and reduced trade deficits are bound to foster U.S. GDP growth in the future. In return, sturdier economic growth will augment aggregate construction spending in the United States.

According to the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, job openings increased from 6.1 million to 6.6 million in March. Among the few industries that contributed the most towards employment, construction is worthy of note with 68,000 job creations.

Excellent Q1 Earnings

Growth is very strong in Q1, but, that does not come as a surprise to the market. Importantly, the growth picture for the current and coming quarters is effectively the same as before the start of this earnings season.

Net margins are expected to increase 1.4 percentage points from the year-earlier period, with Construction being one of the primary sectors driving most of the margin gains. For the first quarter, construction sector earnings were up 47.3% from the same period last year on 20.3% higher revenues.

3 Great Choices

Given such circumstances, we have highlighted three real estate mutual funds that are poised to gain from such factors. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their 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.

Mutual Funds to Buy on Booming Construction Activity: Fidelity Advisor International Real Estate Fund (FIRIX)

Fidelity Advisor International Real Estate Fund (MUTF:FIRIX) seeks to invest primarily in foreign securities. The fund invests a bulk of its assets in securities of companies involved in the real estate industry as well as real estate-related investments. It allocates investments across the globe in different countries and regions.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund’s returns over the three and five-year benchmarks are 6% and 5.9%, respectively.

FIRIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.95%, which is below the category average of 1.33%.

Mutual Funds to Buy on Booming Construction Activity: Principal Real Estate Securities Fund (PREPX)

Principal Real Estate Securities Fund (MUTF:PREPX) seeks growth of total returns. PREPX invests the majority of its assets in equity securities of real estate companies. The fund focuses on value equity securities.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund’s returns over the three and five-year benchmarks are 4.9% and 6.6%, respectively.

PREPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.07%, which is below the category average of 1.21%.

Mutual Funds to Buy on Booming Construction Activity: John Hancock II Real Estate Securities Fund (JIREX)

John Hancock II Real Estate Securities Fund (MUTF:JIREX) seeks appreciation of capital and income over the long term. JIREX invests primarily in equity securities of companies engaged in operations related to the real estate sector, which includes REITs. The fund invests in securities including common stock, preferred stock and convertible securities. It may invest a maximum of 10% of its assets in securities of companies domiciled outside the U.S. territory.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund’s returns over the three and five-year benchmarks are 4.5% and 5.3%, respectively.

JIREX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.79%, which is below the category average of 1.22%.

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