The world according to the Global Industry Classification Standard for stocks is changing, and investors need to understand the new world order.
It starts with the elevated importance of real estate. Growth has been so phenomenal that S&P Dow Jones Indices and MSCI, which developed and oversee the GICS, are moving real estate out of the financial sector space that it has historically occupied and creating a separate standalone sector for real estate, effective Sept. 19.
“The real estate sector will have more prominence,” explained David Blitzer, managing director and chairman of the index committee of S&P Dow Jones Indices, during an educational S&P webinar.
The new real estate sector will include 28 real estate development stocks and REITs and account for 3.5% of the weighting in the S&P 500. As of June 30, 2016, the floating adjusted market cap was $588 billion. Mortgage Reits will remain a part of the financial sector.
“Being elevated to a separate sector itself is a significant event and it puts real estate on the map,” said David Mazza, managing director, head of ETF and Mutual Fund Research for State Street Global Advisors.
At the same time, the financial sector, which has included real estate stocks, will lose some of its importance.
Impact on the Financial Sector
Currently, financial stocks accounts for 16% of S&P 500 sector allocation, explained Mazza. Only Information technology is larger, at 20%. Once real estate is pulled from the financial sector, financials will fall to 13% of the S&P 500, becoming the third largest sector, behind healthcare.
In addition, financials will lose one of its star performers, listed REITS, which have performed better than the broader financial index since 2001, said Paul Murphy, VP, product management, US equities for S&P. REITS had a more than 100% return over 11 years, due in large part to falling interest rates, according to Murphy.