Top 5 Best Real Estate REIT Specialty Mutual Funds

REIT Mutual Fund Logo
REIT Mutual Fund Logo

Intro

Real Estate investment should be part of investor’s asset diversification. Investing in real estate has become steadily more popular over the last 50 years and has become a common investment vehicle. Most financial advisors recommend 5%-10% of investor’s asset investing in real estate. Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complex than investing in stocks and bonds. In this article, I’ll provide the Top 5 Best REIT Mutual Funds.


Several ways to invest in real estate are:

  1. Buy a house. This choice certainly is not for everyone. The risk is certainly high especially after this crisis. Investor or buyer needs to find the house. Then if you are ready to purchase, he or she needs to provide down payment and qualifies for mortgage loan. Finally, the buyer will pay tax and maintenance cost for the house.
  2. Buy an investment or rental property individually or through partnership. Similar to owning a house, there are many cost associated with owning the rental property. Also, investor needs to provide services for the renter such as when the washer is broken; the owner needs to fix it etc.
  3. Invest in Real Estate Investment Trust (REIT) mutual funds. This is what I’ll focus on later. I’ll provide the Top 5 Best Real Estate REIT Mutual Funds. I really like this investment strategy since the related cost is only the fund expense ratio as well as some sales load and 12b1 fee. You can trade mutual fund anytime during trading days.
  4. Invest in REIT ETF and REIT CEF. REIT ETF and REIT CEF trade like stock which can provide liquidity and flexibility for investor and trader. I’ll provide more details on this subject later. Similar to mutual fund, investor can trade regularly and investing cost or fee is also very little compare to owning a house or property.

Based on above ideas, investing in real estate mutual fund or ETF or CEF is definitely a good choice since it relates to lower cost and risk. If you are interested in REIT ETF, please check the following article:


Criteria

What are my criteria for selecting this Top 5 Best Real Estate REIT Mutual Funds? I always like the big asset mutual fund and high Morningstar rating (> 3 stars). Big asset mutual fund means small investor as well as institutional investor will invest in this fund without hesitation. Usually big asset also means it is a solid fund and will continue to grow during present or future time. High rating in Morningstar rating means the fund has performed better than its index or competing fund during the bull market or bear market. The following is the Top 5 Best Real Estate REIT Mutual Funds:

  1. Vanguard REIT Index
  2. Fidelity Real Estate Investment
  3. Cohen & Steers Realty Shares
  4. DFA Real Estate Securities I
  5. T. Rowe Price Real Estate
  6. First American Real Estate Securities A
  7. Invesco Real Estate A

(click column header to sort results)
No  
Fund Name  
Ticker  
Morningstar Rating  
Net Assets  
Yield  
Expense Ratio  
Min Invest  
1
Vanguard REIT Index
VGSIX
3
15.8 Bil
3.07%
0.26%
$3,000
2
Fidelity Real Estate Investment
FRESX
3
3.2 Bil
1.66%
0.90%
$2,500
3
Cohen & Steers Realty Shares
CSRSX
4
2.8 Bil
2.13%
1.06%
$10,000
4
DFA Real Estate Securities I
DFREX
3
2.7 Bil
2.57%
0.36%
$0
5
T. Rowe Price Real Estate
TRREX
3
2.5 Bil
2.47%
0.77%
$2,500
6
First American Real Estate Secs A
FREAX
5
2.4 Bil
2.18%
1.27%
$2,500
7
Invesco Real Estate A
IARAX
4
1.7 Bil
1.78%
1.32%
$1,000
8
Russell Global Real Estate A
RREAX
3
1.7 Bil
2.34%
1.34%
$0
9
Principal Real Estate Sec
PRRAX
4
1.7 Bil
1.51%
1.28%
$1,000
10
CGM Realty
CGMRX
4
1.5 Bil
1.16%
0.93%
$2,500
Table REIT Fund Comparison

1. Vanguard REIT Index Fund

Vanguard funds have become the index fund leader since its inception. Vanguard funds also are very well known among passive long term investor. Vanguard REIT Index fund (VGSIX) invests in real estate investment trusts—companies that acquire hotels, office buildings, and other real estate property. REITs have often performed differently than stocks and bonds, so this fund may present some diversification to a portfolio already made up of stocks / equities and bonds. The fund may distribute dividend income higher than other funds, but investing in this fund definitely involves risk as well. One of the fund’s primary risks is its narrow scope, since it invests solely within the real estate industry sector and may be more volatile than more broadly diversified stock funds. Compare to its closest competitors, Vanguard REIT Index has almost 5 times net asset than the other REIT funds with 15.8 Billion.

The fund is passively managed by Gerard C. O'Reilly since 1996. The expense ratio of this fund (VGSIX) is 0.26%. There is no 12b1 fee and as well as no sales load (front end sales load & deferred sales load) since it is a no load fund. The minimum balance to invest in this fund is $3,000 for brokerage account and $3,000 for IRA account.

The fund performance is as follow:

1 Year: 43.16% per year

3 Year: -4.22% per year

5 Year: 3.71% per year

10 Year: 11.23% per year

This fund is also offered in most IRA retirement, 401K retirement account, and 529 accounts. Some asset classes of fund have lower expense ratio fee, and no front end sales charge fee. Other tickers of this fund are: VGSNX, VGSLX and VGRSX. For VGSNX ticker, the expense ratio is only 0.09% and there is no other fee.

As discussed before, the primary fund portfolio consists of Mid Cap Blend stocks with 99.9% asset in REIT sector. The top 5 REIT sectors of this fund as November 2010 are Specialized REITs, Retail REITs, Office REITs, Residential REITs, and Diversified REITS. Top 10 largest equity holdings for this fund include Simon Property Group Inc, Public Storage, Vornado Realty Trust, Equity Residential, Boston Properties Inc, HCP Inc, Host Hotels & Resorts Inc, AvalonBay Communities Inc, Ventas Inc, and ProLogis.


2. Fidelity Real Estate Investment - FRESX

Fidelity fund is also one of the top 3 fund family in USA. The Fidelity Real Estate Investment fund seeks to provide above-average income and long-term capital growth. The fund normally invests primarily in common stocks and invests most of its assets (>80%) in securities of real estate companies and other real estate related investments. It invests in domestic and foreign issuers and uses fundamental analysis of factors such as each financial and industry position, as well as economic and market conditions to select investments.

The fund is managed by Steve J. Buller since 1997. The expense ratio of this fund (FRESX) is 0.90% per year. This expense ratio is higher than Vanguard REIT Index fund. There is no 12b1 fee and as well as no sales load (front end sales load & deferred sales load) since it is a no load fund. The minimum balance to invest in this fund is $2,500 for brokerage account and $2,500 for IRA account. There are no other classes for this fund. The fund has returned 45.94% over the past year, and -4.41% over the past three years.

The primary fund portfolio consists of Mid Cap Blend stocks with 98.9% asset in REIT sector. Most of the asset is invested in domestic equities. Top 10 largest equity holdings for this fund include Simon Property Group Inc, Public Storage, Vornado Realty Trust, Equity Residential, Host Hotels & Resorts Inc, HCP Inc, Boston Properties Inc, Ventas Inc, ProLogis and Kimco Realty Corp.


Cohen & Steers Realty Shares Overview
Cohen & Steers Realty Shares Overview

3. Cohen & Steers Realty Shares - CSRSX

Cohen & Steers is a firm specialized in Real Estate mutual funds. Cohen & Steers Realty Shares fund seeks total return with equal emphasis on capital appreciation and current income. The fund invests primarily most of its asset (80%-100%) in equity securities of real-estate companies. These securities may consist of common stocks, rights or warrants to purchase common stocks, convertible securities, and preferred stocks. It may invest without limit in shares of real-estate investment trusts. The fund may invest small part of its assets (<20%) in securities of foreign real-estate companies.

The fund is managed by Robert M. Steers since 1991. The expense ratio of this fund (CSRSX) is 1.06% per year. This expense ratio is higher than Vanguard REIT Index fund and Fidelity Real Estate Investment fund. There is no 12b1 fee and sales load (front end sales load & deferred sales load) since it is a no load fund. The minimum balance to invest in this fund is $10,000 for brokerage account. There are no other classes for this fund.The fund has returned -3.39% over the past 3 year, and 4.50% over the past 5 years.

The primary fund portfolio consists of Mid Cap Blend stocks with 99.9% asset in REIT sector. Most of the asset is invested in domestic equities. The top 5 REIT sectors are Apartment, Regional Mall, Shopping Center, Health Care, and Office. Top 10 largest equity holdings for this fund include Simon Property Group Inc, Public Storage, Vornado Realty Trust, Equity Residential, Kimco Realty Corp, Boston Properties Inc, Health Care REIT, AvalonBay Communities, HCP Inc, and Digital Realty Trust.


4. DFA Real Estate Securities I - DFREX

DFA Real Estate Securities is part of Dimensional Real Estate Mutual Fund lineup. Dimensional Fund is very famous with its long term and low cost investment strategy. The DFA Real Estate Securities Fund seeks long-term capital appreciation in its investment. The fund invests in REIT equity securities of companies and companies engaged in residential construction and firms, except partnerships, whose principal business is to develop commercial property. It also purchases shares of real estate investment trusts (REITs) and invests normally at least 80% of net assets in securities of companies in the real estate industry. The fund can use derivatives, such as futures contracts and options on futures contracts for U.S. equity securities and indices. It can also lend its portfolio securities to generate additional income.

This DFA fund is managed by Stephen Clark since 2008.The expense ratio of this fund (DFREX) is 0.36% per year. This expense ratio is only slightly higher than Vanguard REIT Index fund. There is no 12b1 fee and sales load (front end sales load & deferred sales load) since it is a no load fund. There is no minimum balance information for this fund currently, please check with your brokerage for details. There are no other classes for this fund. The fund has returned -3.39% over the past 3 year, and 4.50% over the past 5 years. Note:

The primary fund portfolio consists of Mid Cap Blend stocks with 99.9% asset in REIT sector. Most of the asset is invested in domestic equities. Top 10 largest equity holdings for this fund include Simon Property Group Inc, Vornado Realty Trust, Public Storage, Equity Residential, Boston Properties Inc, HCP Inc, Host Hotels & Resorts Inc, AvalonBay Communities, Ventas Inc, Kimco Realty Corp, and ProLogis.


5. T. Rowe Price Real Estate - TRREX

T. Rowe Price Real Estate fund objective is to seek long-term growth through a combination of capital appreciation and current income. The fund normally invests majority of its assets (>80%) in the equity securities of real estate companies. It may invest some of its assets (<20%) in companies deriving a substantial portion of revenues or profits from servicing real estate firms, as well as in companies unrelated to the real estate business. The fund will not own real estate directly.

The fund is managed by David M. Lee since 1997. The expense ratio of this fund (TRREX) is 0.77% per year. This expense ratio is higher than Vanguard REIT Index fund and DFA Real Estate Fund. There is no 12b1 fee and sales load (front end sales load & deferred sales load) since it is a no load fund. The minimum balance to invest in this fund is $10,000 for brokerage account. There are no other classes for this fund.The fund has returned 45.09% over the past year, and 3.25% over the past 5 years.

The primary fund portfolio consists of Mid Cap Blend stocks with 99.9% asset in REIT sector. Most of the asset is invested in domestic equities. The top 5 REIT sectors are Apartment, Regional Mall, Shopping Center, Health Care, and Office. Top 10 largest equity holdings for this fund include AvalonBay Communities, Boston Properties, Equity Residential, Federal Realty Investment Trust, Host Hotels & Resorts, Public Storage, SL Green Realty, Simon Property Group, The Macerich Co, and Vornado Realty Trust.

REIT Fund Performance

(click column header to sort results)
Fund Name  
1 Yr Return  
3 Yr Return  
5 Yr Return  
10 Yr Return  
Vanguard REIT Index
43.16%
-4.22%
3.71%
11.23%
Fidelity Real Estate Investment
45.94%
-4.41%
2.72%
10.91%
Cohen & Steers Realty Shares
41.86%
-3.39%
4.50%
11.97%
DFA Real Estate Securities I
43.21%
-5.23%
2.97%
11.13%
T. Rowe Price Real Estate
45.02%
-5.39%
3.25%
11.42%
First American Real Estate Secs
36.86%
-4.30%
4.82%
12.12%
Invesco Real Estate A
28.52%
-7.06%
2.95%
11.78%
Russell Global Real Estate A
29.34%
-7.45%
2.23%
10.28%
Principal Real Estate Sec
30.96%
-5.32%
3.12%
N/A
CGM Realty
36.64%
-6.74%
9.79%
18.80%

How can Investor invest in these mutual funds?

Investor or trader will need a brokerage account to buy most of these mutual funds. I would prefer the following brokerage due to its reliable service and good customer services. Or you can choose any brokerage that you like and are comfortable with.

  1. Scottrade – Investor can trade mutual fund for Free. If you trade stock as well, you can trade stock for $7.00 per trade. The mutual funds selection is vast including load and no load funds. There are 3,000 No load & No Transaction Fees (NTF) fund and 15,000 total of mutual funds.
  2. Fidelity – No trading fee for trading in No load & NTF mutual funds. It also offer a one stop shop for mutual fund or ETF as well as cash management services.
  3. Vanguard – offer various mutual funds that track indexes as well as ETF for free
  4. Charles Schwab - Free trading of Mutual Fund in Mutual Fund OneSource® Funds. All other fund will cost $49.95 per trade.

Disclosure: I have no affiliation with any of these mutual funds. I also have no position in any of these funds. Please do your own research for additional details. Please trade and invest responsibly. Past Performance is No Guarantee of Future Results

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4 comments

IGotSunshine profile image

IGotSunshine 6 years ago from USA

Very informative and insightfull hub. Thanks for writing. I learn a lot.


chan0512 profile image

chan0512 6 years ago from Camarillo, CA Author

Thanks IGotSunshine. Glad you like the hub. More to come about mutual funds. All the best for your new account as well.


chamilj profile image

chamilj 5 years ago from Sri Lanka

Very useful informative investment article. Voted up!!!


propertybroker.ae 12 months ago

thanks for the information , blog is really very intresting

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