Bank of America BAC -0.29% and Wells Fargo WFC -0.46% will no longer live alongside Mack-Cali and Brookfield Property Partners — at least, not within the S&P’s financial sector. The index announced late Monday that it is breaking real estate out of financials and turning it into its own sector. The creation of real estate as its own stand-alone sector brings the S&P’s sector total to 11.
The S&P Dow Jones Indices and investment tool provider MSCI announced Monday night that after a review of the Global Industry Classification Standard (GICS), it makes sense to turn real estate into a sector separate from financials. The change, which is not expected to be implemented until after market close on August 31, 2016, would include renaming the Real Estate Investment Trusts Industry as Equity Real Estate Investment Trusts (aka, REITs), though it would exclude mortgage REITs. Those, the S&P said, would remain in the financial sector under a newly-created industry and sub-industry devoted to mortgage REITs.
“Feedback from the annual GICS structural review confirmed that real estate is now viewed as a distinct asset class and is increasingly being incorporated separately into the strategic asset allocation of asset owners,” Remy Briand, managing director and global head of equity research at MSCI, said in a statement Monday night. “Investors told us that there are significant differences between public real estate and financial companies and therefore real estate deserves a dedicated GICS Sector. This announcement ensures that GICS continues to be the most accurate, complete and standard industry analysis framework for investment research, portfolio management and asset allocation.”
Added David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices: “Real estate is an important and growing part of major economies throughout the world. This is an example of our ongoing effort to ensure that GICS is reflective of today’s markets.”
Though the creation of real estate as its own sector isn’t supposed to take effect until mid-2016, the S&P said that it is requesting feedback “from market participants” by February 13, 2015, and that the final decision regarding the date of implementation will be announced on March 13, 2015.
David Guarino, a spokesperson for the S&P, said Tuesday morning that the long lead time was intentional. “It’s a substantial change that will require clients to change their data systems,” he said, adding that the S&P is trying to avoid causing too much disruption and is instead giving investors and clients a long time to plan for this.
In addition to the creation of a stand-alone real estate sector, S&P also said Monday night that it is creating a copper sub-industry within the metals and mining industry; that change is also expected to take effect in August of 2016.
Once these changes take effect, they will mean that the 57-year-old S&P 500 will consist of 11 sectors, 24 industry groups, 68 industries and 157 sub-industries.
The index, which closed Monday trading to a new record high – 2038.25 points — dipped 2.3 points, or 0.11%, or in early Tuesday trading. Year-to-date, the S&P has gained 10%.