Real Estate Mutual Funds Post Strong Record for First Half '90

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By Carole Gould N.Y. Times News Service In the first half of this year, the stock market has had good news for nearly all investors, with the average stock fund gaining 15.7 percent. The small-stock rally picked up steam as the group rose 26.5 percent through June 20, according to Lipper Analytical Services in Summit, N.J.

Among specialty funds, which invest in narrow market sectors, the financial-services group led with a 31.9 percent gain, and the health-and-biotechnology group, which rose 30 percent, was close behind.

In third place were the real estate funds, which invest mainly in companies that own, operate or develop real estate or that supply services or goods to the real estate industry. These funds gained 22.4 percent.

The turnaround comes after a dismal 1990, when the five funds in the group dropped 16.9 percent, more than double the average stock fund's loss of 7.3 percent, making real estate one of the year's three worst performers.

A robust performance by real estate stocks is usually a portent of better times because "it's one of the first sectors to pick up when the recovery kicks in," said Stephen A. Schoepke, a Lipper analyst.

As an industry, real estate is very sensitive to shifts in interest rates. When the Federal Reserve eases credit, shkrt-term rates fall and long-term rates, including mortgage rates, follow. People start buying houses, builders start building and the effects ripple through the economy. In fact, some people estimate that as much as 40 percent of the economy is tied to residential real estate.

The real estate mutual funds are small _ totaling only $164 million in assets _ and all were established within the last five years. High returns like those of the first half of this year have been unusual. In fact, Barry Greenfield, who manages the $58 million Fidelity Real Estate Fund, says the current rally is a bit of a fluke, the result not only of lower interest rates but also the fact that last year the marketplace viewed the real estate stocks as worse than they really were.

Other managers insist that there are still bargains among real estate stocks. Even so, they advise patience.

"If you're going to play the real estate market, you have to be a patient, long-term investor," said Mark G. Holowesko, who manages the $33 million Templeton Global Real Estate Fund. Do not expect to make money in the next 12 to 18 months, he cautioned; three or four years is a more reasonable target.

The first half's best performer was the $7.5 million United Services Real Estate Fund in San Antonio, which invests mainly in REIT's (real estate investment trusts) and publicly traded home builders. …