November 18, 2011

Top 5 REITs

As the dismal real estate market continues, these funds outperform

A real estate developer outside a California strip mall. (Photo: AP) A real estate developer outside a California strip mall. (Photo: AP)

Investors rightly wonder how, in the midst of the most dismal of dismal real estate markets, real estate investment trusts continue to outperform. After all, common sense dictates that if the underlying properties in which they invest underperform, shouldn’t REITs as well. Is it a castle made of sand?

Well, no, as Marty Cohen of Cohen & Steers explained earlier this month.  

“The real estate market is not monolithic; it is regional and varies by type,” he said, after explaining the differences in performance between residential and commercial space. “In the regional space, the middle of the country isn’t doing as well because that is traditionally a manufacturing base. The coasts, however, are doing well.”

So in addition to Cohen, who else is getting it done?

Zacks Investment Research lists the top five rated REITs. Each has earned a Zacks #1 Rank (Strong Buy), meaning it expects these mutual funds to outperform their peers in the future.

T. Rowe Price's David Lee1)  T. Rowe Price Real Estate (NASDAQ:TRREX)

This fund invests a large share of its assets in companies from the real estate sector, Zacks reports.

“Not more than 20% of its assets may be invested in companies which generate a significant part of their revenues by servicing real estate companies. The real estate mutual fund has a 10-year annualized return of 9.68%. The real estate mutual fund has a minimum initial investment of $2,500 and an expense ratio of 0.76% compared to a category average of 1.45%.”

REIT manager David Lee (above) has been with T. Rowe Price since 1993 and is responsible for research on real estate equities.

Steven Brown of American Century2)  American Century Real Estate (REACX)

This fund seeks a high level of total return. The fund invests heavily in equity securities of real estate investment trusts and companies from the real estate industry. The real-estate mutual fund returned 4.77% over the last one-year period, according to Zacks.

Steven R. Brown (left) is the fund manager and he has been managing this real estate mutual fund since 2008.

Brian Jones of Neuberger Berman3)  Neuberger Berman Real Estate (NBRFX)

This fund “primarily invests in equity securities issued by real estate investment trusts. It also invests in common stocks and other securities issued by companies from the real estate industry. The real estate mutual fund has a three-year annualized return of 1.84%.”

The research firm also notes that as of September, this real-estate mutual fund held 42 issues, with 9.12% of its total assets invested in Simon Property Group Inc.

The fund is co-managed by Brian Jones (above) and Steve Shigekawa.

T. Ritson Ferguson of ING4)  ING Real Estate A (NASDAQ:CLARX)

This fund seeks long-term capital growth and current income, according to Zacks.

“At least 80% of its assets are invested in common and preferred stocks of real estate companies and real estate investment trusts. It is nondiversified and may also invest in convertible securities and IPOs. The real estate mutual fund returned 1.68% over the last one-year period,” Zacks says.

The real estate mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.22% compared to a category average of 1.45%.

The ING Real Estate A's management team consists of T. Ritson Ferguson (above), who has managed the fund since 2002 and Joseph P. Smith, with the fund since 2005.

Fidelity's Steve Buller5)  Fidelity Real Estate Investment (NASDAQ:FRESX)

This fund invests the majority of its assets in real estate companies or other investments related to the sector. According to the report, the fund is nondiversified and invests in both domestic and foreign securities. The real estate mutual fund has a 10-year annualized return of 8.88%.

Steve J. Buller (left) is the fund manager and he has been managing this real estate mutual fund since 1997.

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