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I don't know that you will find a clear answer as to fund types or what is better for a taxable/tax deferred acct. There are many flavors of Real Estate funds. You may be able to Google "tax efficient" Real Estate funds and find something of value.
We have FRIFX (Fidelity Real Estate Income) at this time; and it has its own mix of managers choices...10% cash, 50% bonds, 26% equities and 14% other and is mostly U.S. oriented.
You will find many variants and styles of allocation mixes of assets; both U.S., Global and a mix of U.S. and Global; as well as market cap variations.
Please read the prospectus first. The name itself holds little value.
In the past when the yields of typical real estate funds exceed 5%, it is better to be held them in tax-deferred accounts for tax consideration. Today the dividend component of the real state fund's total return has changed. The yield is much lower, say 1.38% such as Fidelity Real Estate Investment fund (FRESX), and most of the gain comes from capital appreciation. Thus I would consider to use it in taxable account.
The other fund that Catch mentioned, Fidelity Real Estate Income fund, FRIFX, has a much large income producing component (bond), and it yield 4.86%. Again for tax consideration, I would use use it only in tax deferred account.
REITs (and REIT funds) are a poor proxy for direct real estate investment. Moreover, REIT prices are now trading at a substantial premium to Net Asset Value, a condition which has ALWAYS led to a narrowing of this gap (i.e., REIT share prices will probably drop so that share prices come back into line with the NAV of the underlying real estate). Unfortunately, the best real estate investment managers operate private vehicles that are in almost all cases not accessible to retail investors.
The name itself such as FRIFX Fidelity real estate income fund does not tell you whether it is a REIT or a real estate investment fund. IS that corect? Can one make a generalization that REITS are better for tax deferred accounts?
Mutual Funds cannot own real estate. They can however invest in companies that invest in real estate related businesses. Real Estate is a bit too generic to identify what the fund invests. It could be investing in REIT stocks (which might own/rent/manage real estate of various types), stocks of builders/construction cos, Real Estate bonds, convertibles etc. There are Mortage REITs which is got to do with the real estate mortgages. There is even some funds that include mining companies in the definition of their real estate.
On the other hand, REIT is a very specific and special investing structure and by definition these companies must distribute the majority of their income to the investors in order to maintain IRS tax advantaged status.
Most real-estate funds are mostly investing in REIT stocks.
Fidelity Real Estate Income fund invests in REIT stocks, bonds, convertibles and is a somewhat different and more conservative in this group of funds but it too lost a lot in 2008 Real-estate/financials crash.
Comments
I don't know that you will find a clear answer as to fund types or what is better for a taxable/tax deferred acct. There are many flavors of Real Estate funds. You may be able to Google "tax efficient" Real Estate funds and find something of value.
This link is just a partial list of RE funds.
http://moneycentral.msn.com/investor/partsub/funds/topfundresults.asp?Category=SR&Type=&Symbol=$HF
We have FRIFX (Fidelity Real Estate Income) at this time; and it has its own mix of managers choices...10% cash, 50% bonds, 26% equities and 14% other and is mostly U.S. oriented.
You will find many variants and styles of allocation mixes of assets; both U.S., Global and a mix of U.S. and Global; as well as market cap variations.
Regards,
Catch
In the past when the yields of typical real estate funds exceed 5%, it is better to be held them in tax-deferred accounts for tax consideration. Today the dividend component of the real state fund's total return has changed. The yield is much lower, say 1.38% such as Fidelity Real Estate Investment fund (FRESX), and most of the gain comes from capital appreciation. Thus I would consider to use it in taxable account.
The other fund that Catch mentioned, Fidelity Real Estate Income fund, FRIFX, has a much large income producing component (bond), and it yield 4.86%. Again for tax consideration, I would use use it only in tax deferred account.
Burt S.
On the other hand, REIT is a very specific and special investing structure and by definition these companies must distribute the majority of their income to the investors in order to maintain IRS tax advantaged status.
Most real-estate funds are mostly investing in REIT stocks.
Fidelity Real Estate Income fund invests in REIT stocks, bonds, convertibles and is a somewhat different and more conservative in this group of funds but it too lost a lot in 2008 Real-estate/financials crash.