The Real Deal New York

REITs could benefit from stock index split-off

S&P Dow Jones, MSCI plan to break out real estate into own sector Aug. 31

January 25, 2016 01:01PM


New York Stock Exchange

Publicly traded real estate investment trusts could benefit from a decision by major stock indices to break out real estate securities into their own, separate sector.

While real estate companies are currently lumped in with major financial companies likes banks and insurers, the S&P Dow Jones Indices and MSCI stock indexes plan to split real estate away from those stocks starting Aug. 31.

The move is expected to lessen volatility for real estate securities and push up valuations, according to financial publication Pensions & Investments, with up to $100 billion potentially flowing into REITs as a result of investment managers adjusting their strategies to match market weighting.

“It will be a structural tsunami into REITs,” Michael Underhill, founder of asset manager Capital Innovations told P&I. “More money will be driven into REITs… and so valuations will continue to climb and there will be continued outperformance in the REIT space.”

Real estate stocks have not responded well to stock market volatility in the past several months, with companies taking sizable hits after market downturns in both August and earlier this month. [Pensions & Investments]Rey Mashayekhi