FTSE Russell separates REITs from financial stocks in indices
Index provider FTSE Russell is separating real estate from financials in its industry classification benchmark (ICB).
The creation of an 11th industry classification, which will give more visibility to real estate investment trusts (REITs) for equities investors, was announced today at the annual conference of the European Public Real Estate Association (EPRA) in London.
The move follows similar changes made last year to MSCI and S&P’s global industry classification system (GICS) – a move that EPRA said at the time could divert €75bn in capital to Europe’s listed property companies.
As reported by IPE Real Estate last year, giving listed real estate its own classification could prompt equities investors to question whether they should invest more in the asset class, because they are likely to be carrying an underweight position.
Catherine Yoshimoto, senior product manager at FTSE Russell, today said: “This puts real estate squarely front and centre for market participants.”
EPRA chief executive Dominique Moerenhout, said the move was “timely, as the listed real estate industry is growing strongly and is increasingly viewed as an investment asset class in its own right”.
Yoshimoto said the rationale for breaking out real estate in its system was that over the past decade correlations of real estate relative to banks, insurance and financial services had declined significantly.
“There comes a time when industry benchmarks must evolve to reflect current industry practices,” she said.
Real estate had now reached critical mass, she said, with market interest in global listed real estate continuing to grow due to listed real estate’s ability to pay regular dividends, which supported long-term total return.
“While North America continues to be the largest market for listed real estate interest in other markets continues to grow,” she said.
FTSE Russell will also be splitting out industrial and office REITs into their respective subsectors, as well as specialist REITs into five sub-sectors, including healthcare and timber. The change will affect exchange-traded funds (ETFs) based on the FTSE Russell indices.
Yoshimoto said the firm had started talking to clients on this matter and that there would be a transition process for the indices during the course of 2018 ahead of the implementation on 1 January 2019.
Other changes being made by the index provider as part of the overall revamp include expanding telecommunications to include telecommunications equipment and cable television services.
This is being done to “reflect the continuing significance of the industry globally and the evolution of the telecommunications-media-technology segment,” the firm said.