(MONEY Magazine) – Unlike most real estate funds, $81.1 million Longleaf Partners Realty does not focus on real estate investment trusts (REITs). Instead, it owns shares of about 25 companies connected to the industry, including land companies, building-materials manufacturers and savings banks; REITs account for only 20% of assets. That strategy has worked extremely well: The fund has soared 27.5% since its Jan. 2 launch, outstripping both the Wilshire Real Estate Securities index (up 18.2%) and the S&P 500 (17.4%). No-Load Fund Analyst co-editor Ken Gregory believes that Longleaf Realty's freedom to hold all kinds of real-estate-related companies allows it to be more selective than funds that, by prospectus, must load up on REITs. He's also a fan of the Longleaf fund's three pilots: lead manager C.T. Fitzpatrick, 34, plus O. Mason Hawkins, 48, and G. Staley Cates, 32. "The people running the fund have a great pedigree," Gregory says, pointing out approvingly that Hawkins and Cates run the top-performing Longleaf Partners and Longleaf Small-Cap funds.

The managers take a value approach to investing, looking for stocks selling 50% below their estimate of the company's true worth. An early score was Hilton Hotels, which the fund purchased in January at $61 and sold in April when it hit $100.

Experts recommend that for diversification you devote 5% to 15% (but not more) of your equity portfolio to real estate investments. Longleaf Partners looks like an excellent place to start building that stake.

--Lesley Alderman