The Real Deal New York

For REITs, getting own S&P 500 category could be a boon

RE stocks will no longer be grouped with banks and insurers as of Thursday

August 31, 2016 07:30AM


From left: Owen Thomas, Marc Holliday and Steven Roth

As of Thursday, real estate investment trusts will no longer be grouped with banks and insurers in the MSCI and S&P 500 stock indices. Instead, they will become their own category, in a move that could impact how certain funds invest in the sector.

“There is going to be more money looking at the sector,” Matthew Norris of London-based real estate firm Grosvenor Group told the Wall Street Journal. “This is going to bring real estate into focus.”

REIT returns have outperformed the S&P 500 over the past 25 years, but so-called generalist funds that invest in a basket of stocks have allocated a comparatively small portion of their money to REITs. Separating real estate stocks from banks could draw more attention to that fact and spur investment in REITs, analysts at Jefferies International said.

The separation could also make real estate stock prices less volatile. Bank stocks tend to experience great price swings, and by being grouped with them, REIT stocks often see some of that volatility spill over.

“We don’t think things will change dramatically on Sept. 1, or the second, but there will certainly be more people looking at this sector over the long term,” said Philip Charls, CEO of the European Public Real Estate Association. [WSJ]Konrad Putzier