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An 11th GICS Sector is Coming

At the end of August 2016, an 11th sector will be added to the Global Industry Classification Standard (GICS). S&P Global Market Intelligence thinks these changes will impact the way investors conduct sector ETF investing.

In a Real Estate focused webinar in late April hosted by S&P Global Market Intelligence, David Blitzer, chairman of the index committee for S&P Dow Jones Indices, discussed the change being implemented for the S&P global indices in mid-September. He noted that the greater investor interest in recent years for REITs due to their relatively high dividends and the diversification to other equities they provide.

The webinar was attended by a range of investment analysts, investment bankers and real estate corporations. A poll question asked by Keven Lindeman, Real Estate Group Director for S&P Global Market Intelligence revealed that 81% of the respondents expect the greatest impact of the pending GICS addition to be an increase in, and diversification of, ownership of real estate equities. Click here to listen to a replay of the webinar. 

According to S&P Global Market Intelligence product operations analyst Christopher Hudgins 53 U.S. real estate companies in the SNL database hiked its dividend year to date through April 15; Read more from this article from SNL Real Estate's platform. 

81% of the respondents expect the greatest impact of the pending GICS addition to be an increase in, and diversification of, ownership of real estate equities.
 Even before the pending new sector’s creation, REIT ETFs have popular with investors that have sought out the diversification and low costs benefits they provide.  Vanguard REIT Index (VNQ) is the ninth largest U.S. equity ETF. It has a 4.2% dividend yield across 157 holdings and a modest 0.12% expense ratio.

For those investors taking a more tactical approach to sector investing tied to GICS, Fidelity MSCI Real Estate Index (FREL) is worthy of attention.

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 FREL launched in 2015 and has a 0.12% expense ratio. The ETF has 203 holdings, more than VNQ’s 153. FREL’s exposure to specialized REITs (25% vs. 16%) is higher than VNQ’s, while its retail REIT exposure (20% vs. 25%) is lower.  

Guggenheim S&P 500 Equal Weight Real Estate (EWRE) and Real Estate Select Sector SPDR (XLRE), both tied to the S&P 500 index, are also options to consider.

Follow me @ToddSPGlobal to keep up with mutual fund and ETF trends. 

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