The moving date has been set – from Monday, 19 September, property-related stocks will move from the Financials sector classification within S&P indices to their own Real Estate group.
Promoting Real Estate to a stand-alone industry group recognises its growing position in the global economy. The market generally perceives real estate companies as fundamentally different from companies in other sectors under the global industry classification standard (GICS) methodology, including those that they are currently grouped with in the Financials sector.
Larger stocks in the sector include Scentre Group, Westfield Corporation, Goodman Group and Vicinity Centres. In addition, stocks such as Lend Lease, Aveo Group and McGrath will now be clearly identified as real-estate stocks.
On a theoretical basis, there should be no change in the weighting that real-estate stocks have in overall indices, such as the S&P/ASX 200 Index, given the companies are just being shifted around within the overall benchmark index.
But there is the possibility, however, that some active fund managers – who may have previously avoided exposure to real-estate stocks due to their classification with the Financials sector – may have to rethink their underweight positions. This could mean buying interest in members of the new sector, including growth-style developers.
The real-estate sector in Australia is no minnow and can easily stand on its own – total market capitalisation for the sector is around $158 billion or around 9% of the total Australian market. This new classification by S&P will make it the third-largest sector, after Financials (circa 34% following real estate’s separation) and Materials (circa 14%).
The two main sub-industry classifications within the new Real Estate sector will be Equity Real Estate Investment Trusts (formerly Real Estate Investment Trusts and more well-known in Australia as Property Trusts); and Real Estate Management and Development.
The creation of an additional sector under the GICs - flagged earlier in 2016 – is a first for the classification system since its creation in 1999.