Top-Performing
Real-Estate Funds

Real-estate funds are dealing with a foreign concept in 2005: losses.

Even so, it is a good idea to have at least some real estate in a portfolio, say experts.

Real estate doesn't move in correlation with equities or fixed-income securities, which makes it a good buffer when one or the other is in trouble.

And real-estate funds generate income -- particularly those that invest in real-estate investment trusts, or REITs. The average yield for REITs is about 5%, far better than the Standard & Poor's 500-stock index's average of 1.7%.

In the first two months of the year, the real-estate sector fell 5% as the broader market stayed relatively even. Over the past 12 months, though, the sector had a return of 12%, compared with the S&P 500-stock index's 7%.

There are a still a number of worst-case scenarios that could derail the sector, like a sharp rise in interest rates or a recession.

But many funds in the sector are well-positioned for markets cooling, says Don Cassidy, a senior analyst at investment-research firm Lipper.

If you are worried that real estate may have peaked, be sure to dollar-cost average into your fund of choice by investing fixed amounts at regular intervals.

This week, we zeroed in on top-performing real-estate funds. All of the funds on our list sport returns in the top 50% of the classification over the past three-year and five-year periods. We excluded funds that carry load charges, and we required expenses in the bottom 50% of the group. In addition, the funds each have net assets in excess of $50 million, are open to new investors and ask for minimum investments of no more than $5,000.

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