Consumer spending had driven the tepid economy during the first half of the year. However, a potential stumbling block for the economy cropped up with retail sales coming in flat in July. Cost reduction in the service sectors and energy products also indicated that the inflation rate will be weak, making Fed’s 2% target all the more difficult to achieve.

Given the disappointing retail sales figures last month and discouraging inflation trends for producer prices, chances of a rate hike seem to be receding. A low interest rate environment is a blessing in disguise for REIT mutual funds; hence, investing in such funds will be a judicious decision.

U.S. Retail Sales Stall

Sales at retailers and restaurants remained unchanged at a seasonally adjusted $457.73 billion last month from the prior month, according to the Commerce Department. Even though sales remained stubbornly flat, it did tick up a measly 2.3% from a year earlier.

But, if we exclude sales of motor vehicles and parts, the largest category at 21% of total retail sales, growth slumped 0.3% in July, its weakest reading since January. Sales at auto and parts dealers rose 1.1% in July to $93.2 billion from the prior month. This data makes us believe that Americans flocked to auto dealers shunning other merchants; however, it isn’t clear how long auto sales will boost consumer spending levels. Unit sales at the top three auto makers – General Motors Company (GM - Analyst Report) , Ford Motor Co. (F - Analyst Report) and Toyota Motor Corporation (TM - Analyst Report) – dropped in July as pent-up demand slackened.

Except for non-store retailers, sales numbers were lackadaisical, while it was a nightmare for the already struggling brick-and-mortar retailers. Departmental store sales fell 0.5% as consumers shifted their preferences to online shopping. But, it was not only brick-and-mortar paying the price; consumers also cut back spending on sporting goods and hobby outlets, food and beverage stores, building-material suppliers, electronics outlets and several other categories in July.In fact, sales at gasoline stations declined 2.7% mostly due to lower gas prices. Cooling consumer spending suggest that the Fed won’t hike rates anytime soon (read: 4 Non-Store Retail Picks to Smartly Play Stalled July Sales).

Disappointing Inflation Trends

U.S. producer prices unexpectedly fell in July as retail margin slipped and oil prices declined. Firming energy prices had helped producer prices pick up momentum over the prior three months. Nevertheless, the producer-price index that measures what firms pay ranging from dairy products to warehousing dropped at a seasonally adjusted rate of 0.4% in July from the prior month, its first decline since March and the largest since September 2015.

Energy prices dropped 1% in July, while prices for services fell 0.3%, mostly led by declines in margins for apparel and accessories retailing. Excluding the volatile food and energy category, the so called core producer prices were also down 0.3%.

In the 12-month period through July, the producer price index slipped 0.2% following a gain of 0.3% in the 12-month period through June. These data indicated a tame inflation environment, which provides little assurance that the Fed will hike rates soon (read: What is Inflation?).     

4 REIT Mutual Funds to Gain from Ultra-Low Rates

Thanks to the aforementioned factors, chances of a rate hike this year seem to be off the table. The Fed has kept the federal funds rate in the 0.25% to 0.5% range. This development is encouraging for real estate investment trusts or REITs. This is because debt is an important part in real estate investing, and a rate hike will run counter to this plan. REITs borrow money to invest in new properties; hence a hike in rates could limit their expansion plans.

Higher interest rates will make government treasuries and other bonds more attractive compared to REITs, whose major attraction is dividend yields. In that case, investors will stick to government securities and not hold onto REITs (read:REITs Could be Affected by Higher Interest Rates).

Given this promising scenario, investing in REIT mutual funds will be a prudent choice. But, why mutual funds? This is because funds reduce transaction costs for investors. Funds also diversify their portfolio without the numerous commission charges that stocks need to bear (read: The Advantages Of Mutual Funds).

We have chosen four such mutual funds that possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive 3-year and 5-year annualized returns, minimum initial investments within $5000 and carry low expense ratios.

Neuberger Berman Real Estate A (NREAX - MF report) invests the majority of its net assets in equity securities issued by real estate investment trusts. NREAX’s 3-year and 5-year annualized returns are 12.2% and 12.4%, respectively. NREAX carries a Zacks Mutual Fund Rank #2. Annual expense ratio of 1.21% is lower than the category average of 1.31%.

AMG Managers Real Estate Securities (MRESX - MF report) invests a major portion of its net assets in stocks of companies principally engaged in the real estate industry, including real estate investment trusts. MRESX’s 3-year and 5-year annualized returns are 15.2% and 15.1%, respectively. MRESX carries a Zacks Mutual Fund Rank #2. Annual expense ratio of 1.16% is lower than the category average of 1.31%.

DFA Global Real Estate Securities Portfolio (DFGEX - MF report) seeks to achieve exposure to a broad portfolio of securities of U.S. and non-U.S. companies in the real estate industry, with a focus on real estate investment trusts. DFGEX’s 3-year and 5-year annualized returns are 12.2% and 12.72%, respectively. DFGEX carries a Zacks Mutual Fund Rank #2. Annual expense ratio of 0.27% is lower than the category average of 1.45%.

T. Rowe Price Real Estate Advisor (PAREX - MF report) is likely to maintain a significant portion of assets in real estate investment trusts. PAREX’s 3-year and 5-year annualized returns are 13.8% and 13.7%, respectively. PAREX carries a Zacks Mutual Fund Rank #2. Annual expense ratio of 1.01% is lower than the category average of 1.31%.