5 ms·

Real Estate Strikes Out on Its Own in the Stock Indexes

55 points by chollida1 10y ago

haney 10y ago
> Seeing real estate as a stand-alone sector in an index could also drive more money to REITs. I'm going to be very interested to see how this reclassification impacts the price of REITs. I'd imagine that capital inflows are going to cause a spike in prices.
- akg_67 10y ago
  In the short term, capital outflow from selling of REITs by Financial Index Funds will depress the REIT prices. Financial Index Funds have much more capital invested in them than that in the REIT index Funds. Any REIT selling by Financial Index Funds will have bigger impact than any REIT purchasing by REIT Index Funds. Come tax time, lots of investors in Financial Index Fund will be in for the surprise, a larger capital gains unless Financial Index Funds decide to spin off REIT holdings as a separate REIT Index Fund instead of selling REIT holdings.
  - REBurner 10y ago
    Real estate professional here, investing in listed and non-listed. Few ETFs will have to adapt to this change, but those that will have had a long time to figure out the most tax efficient way of doing so. While they are passive managers, they still have incentives to help their investors with structure. The new GICS sector could bring some new attention to the sector. This probably will affect small cap more than large cap as the generalists take a broader look at the sector. Many have invested in the large caps for a while just to have some exposure. There have been rumors that general stock managers have underweighted the sector overall as it was a part of their 'financial' bucket, but unlike the traditional financial stocks. However, I wouldn't expect money rushing in or out. If there is any price drop over the next couple weeks I would expect it is due to expectations around the Fed rather than ETFs selling.
chollida1 10y ago
In a world where so many people do passive ETF index based investing this has the ability to move markets. With Reits becoming their own asset class, suddenly a lot of money is going to be funneled int this space, mostly without investors even knowing about it. And of course since Reits will suddenly pull in more money, there are other area's of the market that will have that money pulled from them. I think the article mentions it, but Reits tend to be counter cyclical to Finance, an area that is a large part of the broad market, as low interest rates help real estate while high interest rates help banks. So people have been watching financial ETF's as one area that may be hit by this change. Lot's of funds have spent the past 6 months positioning themselves to try and gain from this. Fortunately for most people, this won't be a one time event like an ETF re balancing but it will happen gradually.
- themartorana 10y ago
  What does this do to the cost of real estate overall? I'm in no way versed on investing, let alone in real estate trusts, but $900B seems like a lot of money. Is there an impact on the cost of housing in general?
  - haney 10y ago
    REITs encompass more than just housing (there are large REITs for malls, office buildings, prisons, and even data centers). I would imagine that multifamily and student housing REITs increasing in equity value would allow them to use some of that value to take on more projects, thus increasing demand for real estate and increasing the price. But most of the sandboxes that they're playing in aren't individual homes (other than mortgage REITs which represent about 10%, not sure how they would be impacted, I'm not a REIT expert).
  - loeg 10y ago
    Absolutely no impact. This change shouldn't even affect REIT stock prices very much in the short to medium term.
- kgwgk 10y ago
  Actually if this reclassification moves markets it will not be to due to passive investing. The market will be the same, only the allocation of companies to sectors changes. A truly passive investor don't change his holdings at all, he's already invested in REITs. Of course [1] ETFs that track the financial sector only will sell the REITs (and I'm not sure why do you say this is not a one time event), but its debatable if the ETFs that are used for sector/industry/theme allocation qualify as "passive investing." There will also be consequences for active managers, that may be benchmarked to a particular sector or for some reason might be induced to increase/reduce exposure to REITs (either hard constraints or, as the article says, "they have to close that gap or answer questions.”). [1] Edit: Actually some fund providers have found an alternative mechanism: State Street Global Advisors will give shares of their new XLRE fund to XLF holders.
baccredited 10y ago
FYI - You can already buy this sector with the Vanguard REIT ETF (VNQ)
oxryly1 10y ago
"X Strikes Out ..." is a terrible headline format, since "strikes out" means either to soundly fail or to optimistically begin a venture. Boo.
- Apocryphon 10y ago
  Sounds like a phrase that's blowing up.
- pessimizer 10y ago
  I'm pretty sure "to strike out on one's own" is an older phrase than the sports analogy.
- eggdude 10y ago
  Given the context ("on Its Own") is doesn't seem very ambiguous.
  - oxryly1 10y ago
    I read it also as "real estate tried the stock market by itself and failed." But yes, the phrase "strike out on your own" does hang together a bit.

55 points by chollida1 10y ago

haney 10y ago

> Seeing real estate as a stand-alone sector in an index could also drive more money to REITs. I'm going to be very interested to see how this reclassification impacts the price of REITs. I'd imagine that capital inflows are going to cause a spike in prices.

akg_67 10y ago
In the short term, capital outflow from selling of REITs by Financial Index Funds will depress the REIT prices. Financial Index Funds have much more capital invested in them than that in the REIT index Funds. Any REIT selling by Financial Index Funds will have bigger impact than any REIT purchasing by REIT Index Funds. Come tax time, lots of investors in Financial Index Fund will be in for the surprise, a larger capital gains unless Financial Index Funds decide to spin off REIT holdings as a separate REIT Index Fund instead of selling REIT holdings.
- REBurner 10y ago
  Real estate professional here, investing in listed and non-listed. Few ETFs will have to adapt to this change, but those that will have had a long time to figure out the most tax efficient way of doing so. While they are passive managers, they still have incentives to help their investors with structure. The new GICS sector could bring some new attention to the sector. This probably will affect small cap more than large cap as the generalists take a broader look at the sector. Many have invested in the large caps for a while just to have some exposure. There have been rumors that general stock managers have underweighted the sector overall as it was a part of their 'financial' bucket, but unlike the traditional financial stocks. However, I wouldn't expect money rushing in or out. If there is any price drop over the next couple weeks I would expect it is due to expectations around the Fed rather than ETFs selling.

chollida1 10y ago

In a world where so many people do passive ETF index based investing this has the ability to move markets. With Reits becoming their own asset class, suddenly a lot of money is going to be funneled int this space, mostly without investors even knowing about it. And of course since Reits will suddenly pull in more money, there are other area's of the market that will have that money pulled from them. I think the article mentions it, but Reits tend to be counter cyclical to Finance, an area that is a large part of the broad market, as low interest rates help real estate while high interest rates help banks. So people have been watching financial ETF's as one area that may be hit by this change. Lot's of funds have spent the past 6 months positioning themselves to try and gain from this. Fortunately for most people, this won't be a one time event like an ETF re balancing but it will happen gradually.

themartorana 10y ago
What does this do to the cost of real estate overall? I'm in no way versed on investing, let alone in real estate trusts, but $900B seems like a lot of money. Is there an impact on the cost of housing in general?
- haney 10y ago
  REITs encompass more than just housing (there are large REITs for malls, office buildings, prisons, and even data centers). I would imagine that multifamily and student housing REITs increasing in equity value would allow them to use some of that value to take on more projects, thus increasing demand for real estate and increasing the price. But most of the sandboxes that they're playing in aren't individual homes (other than mortgage REITs which represent about 10%, not sure how they would be impacted, I'm not a REIT expert).
- loeg 10y ago
  Absolutely no impact. This change shouldn't even affect REIT stock prices very much in the short to medium term.
kgwgk 10y ago
Actually if this reclassification moves markets it will not be to due to passive investing. The market will be the same, only the allocation of companies to sectors changes. A truly passive investor don't change his holdings at all, he's already invested in REITs. Of course [1] ETFs that track the financial sector only will sell the REITs (and I'm not sure why do you say this is not a one time event), but its debatable if the ETFs that are used for sector/industry/theme allocation qualify as "passive investing." There will also be consequences for active managers, that may be benchmarked to a particular sector or for some reason might be induced to increase/reduce exposure to REITs (either hard constraints or, as the article says, "they have to close that gap or answer questions.”). [1] Edit: Actually some fund providers have found an alternative mechanism: State Street Global Advisors will give shares of their new XLRE fund to XLF holders.

baccredited 10y ago

FYI - You can already buy this sector with the Vanguard REIT ETF (VNQ)

oxryly1 10y ago

"X Strikes Out ..." is a terrible headline format, since "strikes out" means either to soundly fail or to optimistically begin a venture. Boo.

Apocryphon 10y ago
Sounds like a phrase that's blowing up.
pessimizer 10y ago
I'm pretty sure "to strike out on one's own" is an older phrase than the sports analogy.
eggdude 10y ago
Given the context ("on Its Own") is doesn't seem very ambiguous.
- oxryly1 10y ago
  I read it also as "real estate tried the stock market by itself and failed." But yes, the phrase "strike out on your own" does hang together a bit.