GICS Classification of Real Estate - REIT.com

GICS® is the industry classification methodology that both companies rely on for their proprietary stock market indices and it serves as one of the primary ... Skiptomaincontent Accessibilitystatement GICSClassificationofRealEstate Breadcrumb Home InvestinginREITs InvestorResources In2016,S&PDowJonesIndicesandMSCIelevatedstock-exchangelistedrealestatecompanies(includingREITs)fromundertheFinancialsSectortoanew11thheadlineRealEstateSectorundertheGlobalIndustryClassificationStandard(GICS). OnAug.31,2016,S&PDowJonesIndicesandMSCImovedstock-exchangelistedEquityREITsandotherlistedrealestatecompaniesfromtheFinancialsSectoroftheirGlobalIndustryClassificationStandard(GICS®)toanewRealEstateSector.GICS®istheindustryclassificationmethodologythatbothcompaniesrelyonfortheirproprietarystockmarketindicesanditservesasoneoftheprimaryclassificationsystemsforequitiesforinvestorsaroundtheworld. TheRealEstateSectoristhefirstnewheadlinesectoraddedsinceGICS®wascreatedin1999.  Thechangereflectedthegrowthinsizeandimportanceofrealestate,primarilyequityREITs,intheeconomy.Overthepast25years,thetotalequitymarketcapitalizationoflistedU.S.equityREITshasgrownfrom$9billiontomorethan$1trillion. TheRealEstateSectorrepresentsnearly4.0percentoftheequitymarketcapitalizationoftheS&P1500.EquityREITsmakeupabout98percentoftheequitymarketcapitalizationofthesector.Realestatemanagementandbrokeragecompaniesmakeuptheremainder. Thesectoristheeighthlargestofthe11headlinesectorsinequitymarketcapitalization.ThatmakesitlargerthanUtilities,MaterialsandTelecommunicationServices. EquityREITshistoricallywereanimportantcontributortotheperformanceoftheFinancialsSector,fromwhichtheywerereclassified. EquityREITshelpedboostthetotalreturn,reducethevolatilityand increasethedividendsoftheFinancialsSector: Overtheapproximately10yearsfromtheendof2006throughAugust2016,aperiodencompassingtheGreatRecession,thecompoundaverageannualtotalreturnoftheS&P500FinancialsSectorwas-2.05percent.Thenon-REITconstituentsofthesectoraveraged-4.06percentannually,whiletheequityREITsaveraged9.01percentannually. FromthestartoftherecoveryfromtherecessioninMay2009throughAugust2016,theaveragemonthlyvolatilityoftheS&PFinancialsSectorwas17.9percent.Thevolatilityofitsnon-REITconstituentswasapproximately19.1percent,butthevolatilityofitsequityREITswas16.8percent. EquityREITshistoricallyhavebeenoneofthestrongestdividendgeneratingsectorsinthestockmarket.EquityREITsintheS&P500delivereda3.18percentdividendyieldatAug.31,2016–higherthananyS&P500sectorexceptUtilities(3.54percent)andTelecommunicationServices(4.54percent).Thenon-REITconstituentsoftheS&P500’sFinancialsSectordeliveredadividendyieldof2.02percentatAugust31. TheGICS®RealEstateSectorhasincreasedthevisibilityofREITsandrealestateinvestment. ThecreationoftheGICS®RealEstateSectorhasincreasedthevisibilityofrealestateasadistinctassetclass,promptinginvestors,managersandadvisorstomoreactivelyconsiderrealestate–especiallyREITs–whendevelopinginvestmentpoliciesandportfolios.ThesectoralsohasledtotheintroductionofnewETFs. FTSERussellToCreateNewRealEstateIndustryGroup ThecreationoftheGICS®RealEstateSectorhasincreasedthevisibilityofrealestateasadistinctassetclass,promptinginvestors,managersandadvisorstomoreactivelyconsiderrealestate–especiallyREITs–whendevelopinginvestmentpoliciesandportfolios.ThesectoralsohasledtotheintroductionofnewETFs. RealEstatewillbecomethe11thICBIndustrygroupwhenitissegmentedoutoftheICB’sFinancialsIndustrygroup,ofwhichitcurrentlyisapart.ThenewICBRealEstateIndustrygroupwillrepresentapproximately4percent,or$2trillion,oftheequitymarketcapitalizationoftheFTSEGlobalAllCapIndex,withtherestructuredICBFinancialsIndustrygroupcomprising20percent,basedondataasofJune30,2017. ThechangewillbeeffectiveaftermarketcloseonDec.31,2018. Relatedcontent: EffectsoftheUpcomingGICSClassificationfortheREITIndustry- TheunprecedentedadditionofaHeadlineRealEstateSectortoGICSshouldhavefar-reachingimplicationsforREITs.  S&PDowJonesIndicesOutlinesRevisedGICSStructure- UndertheGICSfour-tierclassificationsystem,thebroadRealEstateSectorwillhousetheRealEstateIndustryGroup,whichisseparatedintothe EquityREITs IndustryandtheRealEstateManagement&Developmentindustry.ThosetwoindustriesaredividedintoSub-Industries,tocreatethefourthandfinaltier. GICSChangea“WatershedMoment”forREITs,saysNAREITChair-“It’sfullrecognitionandtestimonytowhatrealestateandequityREITshavebecomeasanindustry,”saidEdFritsch,2016NareitChairandpresidentandCEOofHighwoodsProperties,Inc. RealEstate'sBigDebut - BecomingacorepartofnewGICSrealestatesectorreflectsgrowthofREIT-basedrealestateinvestment. GICSMoveWillRaiseInstitutionalInvestmentinREITs,HoganSays - APG'sMaryHogansaysREITswillbecomea“have-to-own”sector. FactsonETFs,GICSChanges-DaveNadig,directorofexchange-tradedfundswithFactSet,spokewithREITmagazineaboutthemarketforETFsandtheimplicationsoftheGICSmoveforlistedREITsandrealestatecompaniesonthebuysideoftheinvestingindustry. GICSBringsMoreVisibilitytotheREITIndustry-AHeadlineSectorunderGICSfurthervalidatestheREITapproachtorealestateinvestmentandaffirmstheroleREITsplayinoureverydaylives.  WhatAccountsforREITs’RelativePerformancevsS&P500DuringtheRecentStockMarketTurbulence?- ThedivergenttrendsofmajormarketsectorssincelastAugust,andtheperformanceofequityREITsexceedingsevenofthe10currentGICSsectors,underscoretheimportanceofholdingadiversifiedportfolioacrossallassetclasses,includinglistedequityrealestate. Keyclassificationsystemchanges -Withrealestaterecognizedasatop-lineassetclass,thesechangesfurtheraffirmthatallocationstorealestateandREITsarefundamentaltoawell-diversifiedportfolio. RealEstateSlatedforEleventhHeadlineSectorinGICS®-Stockexchange-listedequityREITsandotherlistedrealestatecompanieswillbereclassifiedfromtheFinancialsSectorandelevatedtoan11thheadlineRealEstateSectoroftheGlobalIndustryClassificationStandard(GICS). GlobalIndustryClassificationStandard(GICS®) FAQs WhatisGICS? TheGlobalIndustryClassificationStandardwascreatedbyMSCIandStandard&Poor’sin1999andisafour-tired,hierarchicalclassificationsystemforlistedequitiesworldwide.Asawidelyacceptedglobalstandard,GICSprovidesastructureforinvestors,analystsandeconomiststoconsistentlyidentifyandanalyzeinvestmentperformanceandeconomicactivity,aswellastodevelopinvestmentpolicies,productsandresearch. What’sgoingonwithGICSandrealestate? OnAug.31,2016,S&PDowJonesIndicesandMSCIelevatedstock-exchangelistedequityREITsandotherlistedrealestatecompaniesfromundertheGICSFinancialsSectortoanew11thheadlineRealEstateSector.RealEstateisthefirstnewheadlineSectorcreatedsinceGICSwasestablished.Atthesametime,theRealEstateInvestmentTrustsIndustrywasrenamedEquityRealEstateInvestmentTrusts(EquityREITs)withintheGICSsystem.MREITsremainintheFinancialsSectorunderanewlycreatedIndustryandSub-IndustryclassificationcalledMortgageREITs. HowmuchoftheGICSRealEstateSectorismadeupofREITs? However,thenewRealEstateSectorincludescompaniesclassifiedintwoIndustryclassifications:EquityREITsandRealEstateManagement&Developmentcompanies.EquityREITsrepresentapproximately98percentofthecombinedequitymarketcapitalizationofthetwogroups. Whywererealestatecompaniesreclassified? S&PDowJonesIndicesandMSCIsaidthatthereclassificationofRealEstatetotheSectorlevel“recognizesitsgrowingpositionintoday’sglobaleconomyaswellas[highlights]theprogressivenatureoftheGICSstructure.”AccordingtoRemyBriand,ManagingDirectorandGlobalHeadofEquityResearchatMSCI,“FeedbackfromtheannualGICSstructuralreviewconfirmedthatRealEstateisnowviewedasadistinctassetclassandisincreasinglybeingincorporatedseparatelyintothestrategicassetallocationofassetowners.”DavidBlitzer,ManagingDirectorandChairmanoftheIndexCommitteeatS&PDowJonesIndices,added,“RealEstateisanimportantandgrowingpartofmajoreconomiesthroughouttheworld.Toreflectthisandsupportgoodfinancialanalysis,GICSisintroducingan11thsectorforRealEstateandredefiningFinancialstoexcludeRealEstate.” WhataretheimplicationsofaRealEstateheadlineSectorclassificationforinvestmentadvisorsandmanagers? ThecreationoftheheadlineRealEstateSectorhasincreasedthevisibilityofrealestateasadistinctassetclassandmayencourageinvestors,theiradvisorsandmanagerstomoreactivelyconsiderrealestate–especiallyREITs–whendevelopinginvestmentpoliciesandportfolios.ThenewRealEstateheadlinesectoralsomayleadtothecreationofnewinvestmentproducts,suchasactiveandpassivemutualfundsandexchangetradedfunds,givingadvisorsandmanagersmorerealestatefundoptionstorecommendtotheirclients. WhataresomeadditionalimplicationsoftheheadlineRealEstateSectorclassification? Mayincreaseanddiversifytheownershipofrealestateequities. Maylowerday-to-daytradingvolatilityaswellascorrelationswithotherassetclasses,therebyfurtherenhancingthepotentialdiversificationbenefitsalreadyprovidedbylistedEquityREITs. Withalargerandmorediverseinvestorbase,thereclassificationmayhelpfurthermoderatetheseverityofrealestatemarketcycles,withattendantbenefitsforthebroadereconomy. ArethereotherexamplesofsystemsreclassifyingEquityREITS? In2007,theU.S.OfficeofManagementandBudget(OMB)reclassifiedEquityREITsfrom“FinanceandInsurance”to“RealEstateandRentalandLeasing”.ThechangewasreflectedontheNorthAmericanIndustryClassificationSystem(NAICS). In2010,MorningstarreclassifiedEquityREITsfromtheFinancialServicessectortoanewanddistinctRealEstatesector.       Disclaimer:ThisinformationissolelyeducationalinnatureandisnotintendedbyNAREITtoserveastheprimarybasisforanyinvestmentdecision.Indicescannotbeinvestedindirectly.Inclusionofasecurityinanindexisnotarecommendationtobuy,sellorholdsuchsecurity.Indexreturnsdonotrepresenttheresultsoftheactualtradingofinvestableassets.Anyinvestmentreturnsorperformancedata(past,hypotheticalorotherwise)shownhereinorinsuchdataarenotnecessarilyindicativeoffuturereturnsorperformance.NAREITisnotactingasaninvestmentadviser,investmentfiduciary,broker,dealerorothermarketparticipant,andnoofferorsolicitationtobuyorsellanysecurityorrealestateinvestmentisbeingmade.GICS®isa registeredtrademark of McGrawHillFinancial andMSCIInc. YouMightAlsoLike... What'saREIT? REITs,orrealestateinvestmenttrusts,arecompaniesthatownorfinanceincome-producingrealestateacrossarangeofpropertysectors.TheserealestatecompanieshavetomeetanumberofrequirementstoqualifyasREITs.MostREITstradeonmajorstockexchanges,andtheyofferanumberofbenefitstoinvestors. WhyInvestinREITs REITshistoricallyhavedeliveredcompetitivetotalreturns,basedonhigh,steadydividendincomeandlong-termcapitalappreciation.Theircomparativelylowcorrelationwithotherassetsalsomakesthemanexcellentportfoliodiversifierthatcanhelpreduceoverallportfolioriskandincreasereturns.Thesearethecharacteristicsofrealestateinvestment. AboutNareit NareitservesastheworldwiderepresentativevoiceforREITsandrealestatecompanieswithaninterestinU.S.realestate.Nareit’smembersareREITsandotherrealestatecompaniesthroughouttheworldthatown,operate,andfinanceincome-producingrealestate,aswellasthosefirmsandindividualswhoadvise,study,andservicethosebusinesses. GetDailyRealEstateNews