TheStreet.com Ratings: Real Estate Funds

On March 6, the National Association of Realtors announced that pending home sales for January fell 4.1% from December and 8.0% from a year ago. The pending sales are a leading indicator or predictor of what the actual home sales of existing homes may be in the next few months.

The region taking the worst hit was the South, with contract signings down 11.7%, the worst monthly decline since February 2001. Pending home sales in the South are at their lowest level since January 2004.

In lending, the worst loans are made in the best of times. TheStreet.com Ratings' new senior bank analyst, Philip van Doorn, explains that "during the real-estate boom, mortgage companies lowered credit standards, giving loans to some borrowers with no income verification and no money down." He adds that "these subprime loans to borrowers with low credit scores may lead to record foreclosures."

The banks that financed the mortgage companies are now forcing the mortgage companies to buy back some of these bad loans and cutting off further credit for new lending. Three subprime lenders, including Mortgage Lenders Network USA, already are in Chapter 11 bankruptcy for reorganization.

The second-largest subprime lender, New Century Financial (NEW Quote), plunged 75.6% for the five trading days ending March 8, as it was forced to buy back loans it had previously sold. The company's lines of credit dried up, new loan activity ceased, and 4% of its workforce has been fired.

Leading off the worst-performing list this week is the (RWF Quote)Cohen & Steers Worldwide Realty Income Fund (RWF), which retreated 4.26%. Of the fund's holdings, 32.1% are in the U.S., with 17.3% in Australia, 7.8% in the U.K., 6.5% in Hong Kong and 5.6% in Canada.

RWF's top holding, Westfield Group, lost 1.26%, but the largest losses came from Hysan Development, down 7.99%, Retail Fund Investment down 7.26%, Kenedix Realty Investment down 6.37%, Creed Office Investment down 5.54%, and Entertainment Properties Trust (EPR Quote), down 5.36%.

The second-worst position on the list belongs to (REPSX Quote)ProFunds Real Estate UltraSector (REPSX), which is leveraged to 150% of the Dow Jones U.S. Real Estate Index. Slightly more than 90% of the fund is invested in REITs, with 5.6% in real estate, 3.6% in forest and paper products, and 0.5% in diversified financial services.

The three holdings taking the worst beating were New Century Financial; Novastar Financial (NFI Quote), which was knocked down by 30.55%; and Impac Mortgage Holdings (IMH Quote), which dropped 16.92%.

On March 7, NovaStar was given notice of a shareholder class-action lawsuit related to material misstatements about the deterioration and increased volatility in the subprime market.

On the other hand, Impac Mortgage Holdings' Chairman and CEO Joseph Tomkinson attempted to disassociate his company with the selloff in subprime lenders saying "essentially we have no exposure to subprime loans," with 99.8% of loans having a 620 or higher credit rating.

Best-Performing Real Estate Funds
Fund	Ticker	Rating	Fund Type	1 Week Total Return
ProFunds Short Real Estate ProFund	SRPIX	U	Open-End	2.15%
Nuveen Real Estate Income Fund	JRS	B	Closed-End	1.19%
Morgan Stanley Inst Intl Real Estate Portfolio	MSUAX	A+	Open-End	1.03%
Dividend Capital Realty Income Allocation Fund	DCA	A	Closed-End	0.71%
JPMorgan International Reality Fund	JIRAX	U	Open-End	0.68%
EII International Property Fund	EIIPX	U	Open-End	0.37%
Westwood Income Fund	WESRX	E+	Open-End	0.00%
RMR Preferred Dividend Fund	RDR	B+	Closed-End	0.00%
Alpine International Real Estate Equity Fund	EGLRX	A+	Open-End	-0.07%
AEW Real Estate Income Fund	RIF	B-	Closed-End	-0.25%
Source: Bloomberg

Not surprisingly, the (SRPIX Quote)ProFunds Short Real Estate ProFund (SRPIX), designed to go up as real estate investments slide, gained the most ground.

Another winner is the (JRS Quote)Nuveen Real Estate Income Fund (JRS). This closed-end fund added 1.19% for the period. The fund holds only U.S. REITs, with 70.6% in equities and 27.9% in preferred stock. The steady income from the preferred stock holdings offset the decline in the equities.

Worst-Performing Real Estate Funds
Fund	Ticker	Rating	Fund Type	1 Week Total Return
Cohen & Steers Worldwide Realty Income Fund	RWF	B	Closed-End	-4.26%
ProFunds Real Estate UltraSector ProFund	REPSX	C-	Open-End	-3.67%
Cohen & Steers Premium Income Realty Fund	RPF	C+	Closed-End	-3.54%
Cohen & Steers Advantage Income Realty Fund	RLF	C+	Closed-End	-3.26%
DWS RREEF Real Estate Fund	SRQ	C+	Closed-End	-2.83%
Cohen & Steers REIT and Utility Income Fund	RTU	B	Closed-End	-2.78%
Neuberger Berman Real Estate Income Fund	NRL	C+	Closed-End	-2.73%
SPDR S&P Homebuilders ETF	XHB	U	ETF	-2.56%
Morgan Stanley Real Estate Fund	REFBX	C-	Open-End	-2.51%
DWS RREEF Real Estate Securities Fund	RRRAX	B	Open-End	-2.51%
Source: Bloomberg

The average real-estate fund we track lost 1.80% from the close on Thursday, March 1st, through Thursday, March 8. The loss would have been worse had the sector not bounced back by an average of 1.49% on the last day, bringing the year-to-date average above ground to 1.45%. But, it is too soon to call this the bottom for real estate.