Browse Tag: gics

GICS Real Estate: Soon In A Class Of Its Own

Chart showing pyramid of GICS classifications
Above: The GICS classification today.

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:

Code Sector Subcode Industry Groups
10 Energy 1010 Energy
15 Materials 1510 Materials
20 Industrials 2010 Capital Goods
2020 Commercial & Professional Services
2030 Transportation
25 Consumer Discretionary 2510 Automobiles & Components
2520 Consumer Durables & Apparel
2530 Consumer Services
2540 Media
2550 Retailing
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
40 Financials 4010 Banks
4020 Diversified Financials
4030 Insurance
4040 Real Estate
45 Information Technology 4510 Software & Services
4520 Technology Hardware & Equipment
4530 Semiconductors & Semiconductor Equipment
50 Telecommunication Services 5010 Telecommunication Services
55 Utilities 5510 Utilities

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.

“GICS” is a registered trademark of McGraw Hill Financial and MSCI Inc.

Source: Real Estate’s Big Debut | REIT.com