Capture The Housing Uptick With These 5 Mortgage-Backed Mutual Funds

Over the past two quarters, the housing market has shown significant signs of improvement.  This improvement has decreased the total amount of residential properties that are considered underwater (they owe more on their mortgage than the property is worth).  Overall, the levels of negative homeowner’s equity has been on the decline since the beginning of the year.  Essentially, people’s homes are now worth more than they owe in greater percentages than in the beginning of 2014.

The main driver behind this improvement is the increase in the median home prices.  According to CoreLogic, recognized as the premier supplier of real estate, and mortgage data, between July 2013, and July 2014, home prices have risen 7.4% in the USA. 

This price increase has helped to considerably decrease the amount of homes currently underwater.  CoreLogic states that in Q1 2014 352,000 residential properties rose from being underwater, and in Q2 2014 946,000 residential properties rose above water.  This has brought down the U.S. residential properties underwater from 6.608 million in the beginning of the year to 5.31 million currently.  Moreover, the Q2 decline is the second largest since the data started to be collected in 2009. 

Therefore, with the housing market gaining traction, and 1.2 million residential properties now above water, it would be wise to look into investments that would benefit from this positive news.

Mortgage Bond Mutual Funds

Mortgage-Bond mutual funds tend to primarily invest in bonds and other debt instruments.  Typically, the fund will focus on a specific area of government, corporate, municipal and convertible bonds, along with mortgage-backed securities. 

We were able to find 5 Mortgage Bond Mutual Funds that had no front loads (to better understand Load Fees, please click here), and a minimal Expense Ratio (to better understand Expense Ratios and how they impact mutual funds, please click here). 

We filter out the Loads, and Expense Ratios because the fees tend to take a significant portion of any gains made by the investor.  Then we picked the 5 best Zack Ranked #1 mutual funds that fit all of our criteria. 

To better understand the methodology of the Zacks Mutual Fund Ranking system, please click here. 

Funds To Consider