LONDON—FTSE Russell said Friday it would establish a separate industry group for real estate under its Industry Classification Benchmark system. The carve-out of real estate from the ICB's Financials industry group is one of several upcoming changes to the classification system, and is scheduled to go into effect after the markets close on Dec. 31, 2018.
As a percentage of market cap weight of the FTSE Global All Cap Index, which classifies approximately 10,000 equities worldwide, the new ICB Real Estate Industry comprises 4%, or US$2 trillion in investable market cap. The remaining weight of ICB Financials comprises 20%, still the largest ICB industry in the index based on FTSE Russell data as of June 30.
“We are very pleased with FTSE Russell's decision to establish publicly listed Real Estate as a separate industry within ICB, distinct from the Financials Industry group,” says Steven A. Wechsler, president and CEO of the National Association of Real Estate Investment Trusts in the US. FTSE Russell manages the FTSE NAREIT US Real Estate Index and the FTSE EPRA/NAREIT Global Real Estate Index on behalf of the association.
“REITs, which will represent the bulk of the Industry group's equity market capitalization, are real estate—a distinct asset class with its own investment characteristics separate from those of financials,” Wechsler continues. REITs are an important allocation in diversified securities portfolios, and FTSE Russell's action will help build global recognition of that fact.”
NAREIT point out that the establishment of a distinct Real Estate Industry group within the FTSE Russell ICB mirrors the 2016 of a new headline Real Estate Sector in the Global Industry Classification Standard, the industry classification system jointly managed by S&P Dow Jones Indices and MSCI. The establishment of real estate as its own GICS sector, after being grouped with the system's Financials sector for many years, was an acknowledgement of the scale that real estate equities have achieved.
“Twenty-five years ago, the total capitalization of REITs was somewhere between $5 billion and $6 billion,” Transwestern CIO Tom McNearney told GlobeSt.com last year. “Today it's almost $900 billion. They've grown to a size where they can justify their own performance in a separate category.”
Other changes to the ICB announced Friday by FTSE Russell include expansion of the system's Telecommunications industry to include telecommunications equipment and cable TV service, and the renaming of the Oil and Gas Industry to Energy, which will be grouped at the sector level as Renewable Energy or Non-Renewable Energy. Additionally, ICB will add 57 subsectors, bringing the total to 171 from 114, and will update definitions accordingly.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
