This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

A Red-Hot Fund Plays the Housing Revival

Stocks in this article: BREFX LEN TOL OC SWK CSU BKD

NEW YORK ( TheStreet) -- Since the financial crisis, real estate has ranked as the top mutual fund category tracked by Morningstar. During the past three years, real estate funds have returned 22.4% annually, compared to 13.5% for the S&P 500.

The big gains can be traced to a rally in REITs (real estate investment trusts), the primary holdings of real estate mutual funds. REITs invest in portfolios of commercial properties, such as offices and malls. As the economy has improved, investors have begun wagering on a revival of property markets. REITs have held special appeal because they pay rich dividends, an asset that many investors have come to crave in today's low-yield environment.

Can REITs continue rallying? Perhaps, but the valuations have begun to look stretched, says Jeffrey Kolitch, portfolio manager of Baron Real Estate (BREFX). Over the years, REITs have sold for an average of 15 times operating earnings, he says. The current figure is around 22.

"By many measures, REIT prices are bumping up against the highest price levels that we have seen," says Kolitch.

Kolitch's views are noteworthy because his fund is red hot. During the past year, the fund has returned 44.8%, compared to 26.3% for its average peer. Baron has enjoyed an edge because it casts an unusually wide net. While rivals focus solely on REITs, Baron owns a range of real estate shares.

Besides REITs, the fund holds brokers and other companies that service the real estate industry. Baron can also own homebuilders and businesses that depend on residential markets.

With demand for homes increasing lately, residential stocks have surged, outpacing REITs and other shares that focus on offices and commercial properties. The rally in residential shares has helped Baron to outpace all its rivals.

Kolitch says that his fund has an important advantage because it can shift between sectors of the real estate markets. During the times when REITs look expensive, Baron can look elsewhere.

Kolitch concedes that his fund may not be the best approach for all real estate investors. Many of his stocks pay little or no dividends, so the Baron fund ranks as one of the lowest-yielding choices in its category.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,191.37 -195.84 -1.13%
S&P 500 2,002.16 -27.39 -1.35%
NASDAQ 4,637.9940 -43.5030 -0.93%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs