Mutual funds investing in real estate investment trusts are "clawing their way back after taking a clobbering in the credit crunch last year," according to The Wall Street Journal.

The average real estate fund, which lost over 14% on average in 2007, was up almost 5.6% this year through May 12, according to Morningstar, Inc. That makes it the second-best-performing U.S. stock fund group this year — impressive considering the S&P 500 slipped 3.7% in the same period.

Keith Pauley, chief investment officer at LaSalle Investment Management, said improvement in the credit markets over the past two and a half months, combined with strong earnings at certain companies and encouraging overall earnings, has energized the sector.

After years of spectacular returns, REIT funds "hit a wall last year as concerns about the residential housing sector and other issues snowballed into a full-blown debt-market crisis," the Journal said.

After pulling $6.4 billion out of real estate funds, excluding exchange-traded funds, in the last three quarters of 2007, investors moved $1.9 billion into them in the first quarter of this year, according to Financial Research Corp.

Originally published in American Banker.