Even with sluggish job growth, strong demand has allowed some apartment REITs to continue to increase rents and shore up occupancy. "Things are still unwinding in the housing market," he says. "A lot of people haven't forgotten about the market crash, and renters aren't afraid of losing out on home equity appreciation if they don't jump in and buy. While there is evidence that the worst of the price declines in single-family homes is behind us, it's going to be a slow, uphill climb to appreciation. That's good news for the rental market."

One of the fund's holdings is Avalon Bay Communities, a REIT that focuses on apartments in desirable markets such as Boston and Washington, D.C., as well as on some West Coast areas, benefiting from below-average unemployment rates in those places. Because housing costs are higher, Avalon Bay can command premium rents. The company also has strong management, a great balance sheet and a proven ability to build new complexes on budget.

The fund also has holdings in industrial REITs. Although this part of the FTSE NAREIT U.S. Real Estate Index lost more than 5% last year (while the index as a whole increased 8.3%), an improving economy has helped the group perk up more recently. Through May 10, the sector had a total return of 20%, while the index returned 14%.

Early signs of a recovery in the industrial sector look encouraging, says Ferguson. For the year ending December 2011, the average industrial occupancy rate improved from 88% to 93%, according to data from SNL Financial, a real estate research group.

At 5% of the fund's assets, Prologis represents the fund's largest industrial REIT position. A leading owner, operator and developer of industrial properties, the company leases more than 3,100 industrial facilities. With properties in 22 countries, it also offers exposure to both the U.S. and offshore markets.

Meanwhile, Ferguson has been adding to holdings in the hotel sector over the last 12 months. Historically, hotels have been one of the last real estate sectors to recover after a recession because of their dependence on consumers' fluctuating travel expenditures and the fact that the properties don't have leased tenants. But since last year, he observes, they've been enjoying improved occupancy rates and cash-flow growth.

In this category, fund holding Host Hotels stands out as a company with a top quality portfolio of properties with a diverse mix of brands, including Marriott, Starwood, Hilton and Sheraton. "These hotels are predominantly in the U.S., but there is also some exposure to international markets," he says. "Thankfully, they don't have too many hotels in Europe."

Mall operator Simon Property Group is the fund's largest holding with 11% of its assets. Ferguson first established an overweight position in the mall sector back in 2009, when the stocks got clobbered by a weak economy and were selling at what he considered bargain prices. Despite the economic trouble, Simon Property Group has been able to replace tenants and raise rents, and the stock's dividends increased several times last year.

While he's cautious about prospects for the office market, which has yet to recover from a weak economy, certain companies are showing solid earnings growth, especially those specializing in central business district office properties (rather than suburban holdings), in desirable, stable areas. One such holding, Douglas Emmett, owns a portfolio of high-quality office properties in Los Angeles.

One of the sectors where the fund is underweight relative to its benchmark is health care. Although yields in this group are higher than in other REIT sectors, Ferguson believes the stocks "are trading at values well in excess of the value of their underlying properties. Their dividend yields might be attractive, but relative to their growth in underlying earnings, we believe they are overpriced."