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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

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.
- chollida1 10y ago
  > Actually if this reclassification moves markets it will not be to due to passive investing. Sure, its easy to show where your thinking went wrong here... Say there is one passive ETF for the US market and the US market is composed of 2 sectors, Finance and Tech that are balanced at say 60-40 split. There is now a 3rd sector call REITS that is 10 percent of the market. The ETF now has to transfer from a 60-40 split to a split where 10% is now attributed to REITs. This 10% comes at the expense of other sectors, which is how a passive ETF can move markets. There have been hedge funds positioning themselves for this move for 6 months now.
  - kgwgk 10y ago
    The 10% attributed to REITs is coming directly from the 60% in Finance. Because it was actually composed of 50% Finance/NonREITs + 10% Finance/REITs.
    - chollida1 10y ago
      > The 10% attributed to REITs is coming directly from the 60% in Finance. Yes, that is correct but I think I'm still failing to help you understand. Previous to the re-balance the 60% of finance is dominated by old fiance companies at the expense of REITS such that REITS only make up say 3% of the entire ETF. After the re-balance REIT's are now a much larger portion of the ETF, 10%, than they were before due to them being their own category and the large fiance companies dominating the fiance category before the split. The reason why REITS are now bigger is the same as the reason for giving them their own category. Propulsive they were underrepresented due to being lumped in with fiance. Now that they have their own category there is more demand for them, hence they now have a larger percentage of the ETF. Does this help you understand?
loeg 10y ago
The big index funds already own REITs in proportion to market cap. Nothing changes here unless you're slicing and dicing sectors.

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.

chollida1 10y ago
> Actually if this reclassification moves markets it will not be to due to passive investing. Sure, its easy to show where your thinking went wrong here... Say there is one passive ETF for the US market and the US market is composed of 2 sectors, Finance and Tech that are balanced at say 60-40 split. There is now a 3rd sector call REITS that is 10 percent of the market. The ETF now has to transfer from a 60-40 split to a split where 10% is now attributed to REITs. This 10% comes at the expense of other sectors, which is how a passive ETF can move markets. There have been hedge funds positioning themselves for this move for 6 months now.
- kgwgk 10y ago
  The 10% attributed to REITs is coming directly from the 60% in Finance. Because it was actually composed of 50% Finance/NonREITs + 10% Finance/REITs.
  - chollida1 10y ago
    > The 10% attributed to REITs is coming directly from the 60% in Finance. Yes, that is correct but I think I'm still failing to help you understand. Previous to the re-balance the 60% of finance is dominated by old fiance companies at the expense of REITS such that REITS only make up say 3% of the entire ETF. After the re-balance REIT's are now a much larger portion of the ETF, 10%, than they were before due to them being their own category and the large fiance companies dominating the fiance category before the split. The reason why REITS are now bigger is the same as the reason for giving them their own category. Propulsive they were underrepresented due to being lumped in with fiance. Now that they have their own category there is more demand for them, hence they now have a larger percentage of the ETF. Does this help you understand?

loeg 10y ago

The big index funds already own REITs in proportion to market cap. Nothing changes here unless you're slicing and dicing sectors.