Wednesday, Aug. 31, 2016 marks the first new sector entrant into the Standard & Poor’s 500 Index since 1999. Up until this point, REITs were categorized in the financial sector along with banks and other traditional financial conglomerates, but they now comprise their own standalone sector. This sector will consist of the current group of real estate holdings in the index (except for mortgage REITs, which will remain in the financial sector), and its addition may add more fuel to the fire that has been driving the markets over the past several months.  

The dividend yield of the financial sector in the index will drop as a result of the reorganization. Howard Silverblatt, a senior index analyst for S&P Dow Jones Indices told Investment News that the dividend yield will fall from 2.25% to 2.03%, while the real estate sector will have a yield of 3.16%. The REIT sector will be populated with 28 new issues with a combined market cap of just over $600 billion. Some of these REITs include American Tower (AMT), Boston Properties (BXP), General Growth Properties (GGP) and Public Storage (PSA).

David Blitzer, the chairman of the S&P Index Committee, wrote that “This is not just rearranging the place cards on the table. The GICS (Global Industry Classification Standard) sectors are widely used to gauge how asset allocations align with markets. With real estate added to the top line of sectors, investors will notice where real estate is and whether they are over or under weighted. Analyses of market movements and fundamentals will focus on real estate the same way they focus on industrials or technology. Based on comments from investors, the real estate industry and others, S&P Dow Jones Indices and MSCI announced in March 2015 that real estate would leave the financial sector and become its own 11th sector in GICS.”

REITs first became part of the S&P 500 in 2001. Chris Hartung, the portfolio manager on the Lazard US Realty Equity Portfolio (LREOX), said that the addition of this new sector will help to spotlight the importance of REITs to investors. He stated, “It further focuses people on why real estate should be a fundamental part of portfolio allocation. It puts a spotlight on the benefits one gets from real estate.”