What The New Real Estate GICS Sector Means For Investors

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What The New Real Estate GICS Sector Means For Investors

Since 1999, the Global Industry Classification Standard (GICS) has been the standard for investment research for anyone interested in the S&P Global and MSCI equities markets. For years, GICS consisted of 10 sectors, but starting September 1, 2016, real estate will be its own GICS sector.

Real Estate had been a sub-sector of Financials, which consisted of Banks, Insurance, and Diversified Financials in addition to Real Estate, Real Estate has come into its own.

What the New Real Estate Sector Means for Accredited Investors

It’s unclear just how the creation of a Real Estate Sector will impact global markets overall or real estate investing in particular over the long term. Short term, we’ll likely see more activity pouring into real estate investment trusts (REITs) simply because that sector has been hot enough to garner the attention of a lot of serious investors. In fact, it’s been outperforming the rest of the Financial Sector, and the S&P 500, all year.

One thing is a given in the short term: Being considered its own asset class will give real estate a big boost in the equities markets. REITs and real estate operating companies (REOCs) are, in a sense, being validated by the investing community.

But there’s something else. This increased visibility will likely lead to a more diverse group of investors putting their money into real estate investments, and it will make real estate as an investment class more visible across the board. That can only be a good thing. Increased visibility will likely reduce fears associated with REITs and REOCs.

Implications for Real Estate Crowdfunding (RECF)

MSCI already has seven real estate indexes listed. David Blitzer, chairman and managing director of the S&P indices, explains in this video that S&P changes will not roll out until the third Friday in September — September 16. However, he clearly believes the new structure will benefit institutional investors.

Here’s what I think that means for real estate crowdfunding:

    • A rising tide lifts all ships — Since we expect the inclusion of a Real Estate Sector as a part of GICS to make real estate as an investment class more visible, it’s likely to lead to more visibility of real estate crowdfunding, as well.
    • More diversification — As more investors take an interest in real estate, they’ll naturally want to diversify their portfolios. If their money isn’t growing in traditional stocks or in other sectors and it is growing in REITs and REOCs, it’s highly likely that serious investors will want to diversify within the asset class that shows the most promise. Right now, that’s real estate.
    • A better educated investor — Investors are beginning to do a lot more for themselves and are relying less on professional managers. This is especially true of Millennials. What it means is that investors are educating themselves on the markets and relying on their own research and analysis. As this happens more and more, RECF will grow on its own. It’s already happening.
    • There is hope for RECF — Sharestates already considers RECF its own asset class. We may someday see RECF included as a sub-sector of real estate on at least one exchange or index.

How to Add Real Estate Crowdfunding to Your Investment Portfolio

From here, it’s looking like blue skies for real estate all around.

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