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Which Real Estate Mutual Fund to Buy: DFGEX or FRIFX?

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For investors looking to park their money in the real estate sector, mutual funds are the cheapest and most convenient options. This category of funds also offers solid protection against inflation. The real estate sector has recently seen tough times but the presence of this investment vehicle generally adds stability to a portfolio. Usually, volatility in property prices is far less than the extent experienced by stocks. Adding such funds to a widely diversified portfolio would increase returns, while significantly reducing the associated risk.

The Real Estate Select Sector SPDR Fund (XLRE) has gained 27% year to date (YTD). The recent Freddie Mac Primary Mortgage Market Survey, 30-year fixed mortgage rate dropped 120 basis points over a year to an average rate of 3.73%. This is likely to propel gains for the space.

So, investing in real estate mutual funds seems prudent as of now. Let us look at two of the best funds from the space and find out which one is better for investment.

DFA Global Real Estate Securities Portfolio (DFGEX - Free Report)

The fund aims for long-term capital appreciation. It seeks to gain exposure to a wide portfolio of securities of U.S. and foreign companies in the real estate industry. It invests with a focus on real estate investment trusts or companies that the advisor evaluates as REIT-like. The fund may pursue its objective by investing in DFA Real Estate Securities Portfolio, DFA International Real Estate Securities Portfolio and in securities of companies operating in the real estate industry. 

This Sector-Real Estate product has a history of positive total returns for over 10 years.  Specifically, the fund’s returns are 7.3% over the 3-year and 9% over the 5-year period. To see how this fund performed compared with its category, and other #1 and #2 Ranked Mutual Funds, please click here.  

The DFA Global Real Estate Securities Portfolio Fund, as of the last filing, allocates its assets in the top two major groups; Intermediate Bond and Large Value. Further, as of the last filing, DFA Inv Intl Real Estate and DFA Inv Real Estate Sec P were the top holdings in DFGEX.

This Zacks Mutual Fund Rank #1 (Strong Buy) was incepted in July 2008 and is managed by Dimensional. DFGEX carries an expense ratio of 0.24% and requires a minimal initial investment of $0.

Fidelity Real Estate Income Fund (FRIFX - Free Report)

The fund seeks higher-than-average income as well as appreciation of capital. It invests the lion’s share of its assets in real estate companies as well as other real-estate-related investments. The fund also invests in preferred and common stocks of real estate investment trusts, debt securities of real estate entities as well as commercial and other mortgage-backed securities.

This Sector-Real Estate product has a history of positive total returns for over 10 years.  Specifically, the fund’s returns are 7.1% over the 3-year and 7.7% over the 5-year period. To see how this fund performed compared with its category, and other #1 and #2 Ranked Mutual Funds, please click here.

Fidelity Real Estate Income Fund, as of the last filing, allocates its assets in the top two major groups; Intermediate Bond and Large Value. Further, as of the last filing, Amazon and American Tower were the top holdings for FRIFX.

This Zacks Rank #1 (Strong Buy) was incepted in February 2003 and is managed by Fidelity. FRIFX carries an expense ratio of 0.75% and requires a minimal initial investment of $0.

To Conclude

While both DFGEX and FRIFX are buy-rated funds, upon having a closer look, we find that the former is a clear winner. Meanwhile, both the funds are dirt cheap. However, the administrative and other operating expenses of FRIFX are higher than DFGEX’s.

Also, coming to quarterly returns, DFGEX returned 6.1% in Q3 compared with 4.1% returned by FRIFX in the same period. Meanwhile, FRIFX offers lower risk compared to DFGEX. FRIFX has a 3-year beta of 0.2 compared with DFGEX’s 0.5. However, DFGEX is worth the risk, given its lower costs and consistency in providing high returns on investment.

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