GICS Real Estate: Soon In A Class Of Its Own
The global business classification called GICS is about to undergo a makeover, and real estate is about to come into its own.
GICS was created in 1999 as a classification arrangement to categorize every type of publicly traded company. GICS is a four-tiered, hierarchical industry classification system, consisting of ten sectors, 24 industry groups, 67 industries and 156 sub-industries. Classifications are assigned by a company’s principal business activity, and the classifications are used as a basis for market indexes such as a traded and tracked on financial markets.
Here’s the entirety of the GICS categories today. You’ll notice real estate is currently a subgroup of the “financials” sector:
|2020||Commercial & Professional Services|
|25||Consumer Discretionary||2510||Automobiles & Components|
|2520||Consumer Durables & Apparel|
|30||Consumer Staples||3010||Food & Staples Retailing|
|3020||Food, Beverage & Tobacco|
|3030||Household & Personal Products|
|35||Health Care||3510||Health Care Equipment & Services|
|3520||Pharmaceuticals, Biotechnology & Life Sciences|
|45||Information Technology||4510||Software & Services|
|4520||Technology Hardware & Equipment|
|4530||Semiconductors & Semiconductor Equipment|
|50||Telecommunication Services||5010||Telecommunication Services|
Moving On Up
Proposed in 2014 and expected to be rolled out by August of this year is a major change to the categories concerning real estate. Currently, real estate is arranged as a sub-category of the big-ten category of “financials”. The change will bring real estate out from that classification and elevate it to a new, eleventh category named, surprisingly enough, “real estate”.
Why the move? At REIT.com, the prevailing thoughts in a piece about the move are that it reflects the evolution and success of the real estate investment trust (REIT):
Michael Grupe, executive vice president for research and investor outreach at NAREIT, describes the change as “another important and warranted event in the long-term growth and development of stock exchange-listed REITs and real estate companies.” He notes that the classification structure of GICS frames much of the product development, investment research, media coverage, and investment strategies of both institutional and individual investors.
Mike Kirby, chairman and director of research at Green Street Advisors, points out that the commercial real estate sector hasn’t had its own Sector classification in the past because it had been difficult for investors to access the sector through listed securities prior to the Modern REIT Era.
“The success and growth of the U.S. listed REIT market has changed that, and classification of real estate as a sector in GICS is a welcome validation of the fact that any diversified investment portfolio needs significant exposure to REITs,” he said.
The sector classification provides “yet one more rebuttal to anyone treating REITs differently than other equities. So this change should, at the margin, make them more attractive to the generalist community,” Kirby adds.