This September, S&P and MSCI will be adding Real Estate as an 11th sector, accompanying changes to the Global Industry Classification Standard (GICS), which is used to sort public companies into sensible categories. Basically, the new sector will have 27 equity REITs as well as a real estate operating company with a combined market value of $535 billion, thus making it the ninth largest sector out of the eleven.
REIT investors should know this because it is expected to make REITs more popular than ever. In part, this is because there will be more products catering to those interested in the new sector once its constituent companies have been sorted out of their current home in Financials.
In addition, the change should also encourage investment analysts to take REITs and other real estate-related companies more seriously, which in turn, should raise said companies’ profiles and prospects in the eyes of the investors who listen to them. This is important because there are a number of misconceptions about REITs and other real estate-related companies at the moment, ranging from an excessive focus on Realty Income to a false belief that REITs are limited to a small number of stocks.
Of course, this change will not be wholly beneficial. For example, overvalued stocks are likely to become even more overvalued. However, its overall impact for REIT investors should be positive, so much so that they should consider preparing their portfolios in order to maximize their benefit from the incoming wave of new REIT investors.
Source: Barron’s, WSJ, REIT.com, MSCI, S&P
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