S&P 500 Investors Get New Choice for Direct REIT Exposure

Real estate investment trusts (REITs) have long been buried inside the S&P 500 (NYSEARCA:SPY) but have now received a giant promotion.

S&P Dow Jones IndicesĀ and MSCI ā€” the index providers who jointlyĀ maintain the GICS system for organizing industry sectors ā€” decided to create a stand-aloneĀ real estate sector. As a result,Ā S&P Dow Jones Indices has launched two new sector indicesĀ that break out financial services companies and real estate firms from within the existing S&P 500 Financials Select Sector Index.

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The new ETF – the Real Estate Select Sector SPDR ETF (NYSEARCA:XLRE) currently owns 25 real estate stocks or “REITs” that are all members of the S&P 500. XLRE will differ from other real estate ETFs like the SPDR Dow Jones REIT ETF (NYSEARCA:RWR) because of its primary focus on a small pool of U.S. large-cap REITs. Ā In contrast, RWR owns 97 U.S. based REITs with a market cap size that isĀ large, mid, and small. Additionally, XLRE does not hold mortgage REITs (NYSEARCA:REM).

SPDR Data

The GICSĀ method wasĀ created by MSCI and StandardĀ & Poorā€™s in 1999 and isĀ aĀ four-tired, hierarchicalĀ classification system. GICSĀ allows investors to identifyĀ and analyze a customizedĀ group of companies usingĀ aĀ common global standard.

The existing Financial Select SectorĀ SPDR Fund (NYSEARCA:XLF), which follows theĀ broader financial sector, will not beĀ impacted by the change. Both realĀ estate and financials will continueĀ toĀ be covered inside XLF and remain a choice forĀ investors looking forĀ broad-based exposure toĀ financials.

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