House prices nationwide have risen about 11% over the past year, as measured by the S&P CoreLogic Case-Shiller National Home Price Index, amid tight supply and hefty demand. That’s nearly twice the 10-year average and much faster than most buyers’ incomes have grown, which is why some experts have begun to raise concerns about an eventual housing bubble.
“Yet it’s not on the horizon based on what we see as of early spring,” says Bill Maclay, co-manager of Fidelity® Real Estate Income Fund (FRIFX). “Market shocks can’t be ruled out, but as long as rates don’t run away from us, I think we’ll see stable housing prices or gains,” Maclay says.
The portfolio managers seek above-average income and capital growth by investing in a diversified mix of commercial real estate security types. The goal, Maclay says, is for the fund to generate higher yield and lower volatility than can be achieved by holding real estate investment trust (REIT) common stocks alone.
Maclay says some of that potential housing demand lies in the roughly half of adults under age 29 who live with their parents, are saving cash, and could enter the housing market in 2021 or the coming years.
He sees opportunities in shares of home financing and manufactured housing companies. One of these as of March 31 is New Residential Investment (NRZ), a stock he’s liked for its attractive dividend, valuation, and upside potential.
Maclay also noted strong supply-and-demand dynamics and healthy earnings for operators of manufactured home parks, such as Equity LifeStyle Properties (ELS), which is seeking to grow organically and via potential acquisitions.
“There’s still plenty of opportunity in this market that we’re seeking to exploit for the fund,” Maclay says.
Fidelity® Real Estate Income Fund held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.
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