| NEW YORK, March 17
NEW YORK, March 17 Shares of Real Estate
Investment Trusts should get a bump up this year as mutual fund
managers buy ahead of a September move by Standard & Poor's to
create a new real estate sector in its classification systems.
By some reckoning, fund managers could direct as much as
$100 billion at the sector as they try to boost REIT holdings to
their market weighting. That is the expectation of JPMorgan
Chase & Co, which has calculated that funds had only about half
as much in REIT stocks as they should if they want to mimic the
Others see less buying than that, but still see a net
positive effect from the S&P move, which was originally
announced in November 2014.
Standard & Poor's will add real estate as an 11th sector to
its Global Industry Classification Standard (GICS) structure
after the close on Aug. 31. The changes will take effect after
the close on Sept. 16 in order to coincide with S&P's annual
rebalance of its indexes.
"They are going to see more demand and those stocks could
work because people need to add weight," said Matthew
Spitznagle, senior equity analyst for Eagle Asset Management in
St. Petersburg, Florida.
REITs already have been outperforming the S&P 500
this year, with the Vanguard REIT index fund, a broad
representative of the sector, up more than 4 percent against the
S&P's barely positive 0.01 percent.
That reverses the trend from 2015, when investors fearing
the Federal Reserve would aggressively raise interest rates sold
the group and the fund fell 1.6 percent for the year.
Rising rates increase costs for REITs that have to borrow
heavily for new investments. REITs are also attractive to
investors for their high dividends in periods of low bond
The new attention from S&P may buoy REITS to a far lesser
degree than JPM sees, and the bump may be temporary. Because
the S&P500 is a so-called market cap index - each company in it
is weighted by its market capitalization - the mere creation of
a sector does not actually change the makeup of the index.
Index-fund managers already have the right amount of real
estate for tracking the S&P; that is how their funds operate.
Active fund managers may buy more real estate investments
because they believe the new status makes the sector more
important, or because they simply think that in a low-rate
environment, the REITS are good to hold.
Bank of America Merrill Lynch recently forecast much more
modest inflows of $5 billion to $8 billion for REITs, should
active managers move their underweight rating to match those of
the telecom and utilities sectors, which are
also known for their high dividend yields.
Tom Bohjalian, manager for Cohen & Steers real estate
securities portfolios in New York, said broader ownership
resulting from the new sector creation will dampen volatility,
but he is not expecting the biggest possible boost.
"It has been said if everyone got to market weight it would
be $100 billion of buying power. Yes, that would be really great
if that occurred," he said.
But he expects any investor move to REITS to be slower and
(Reporting by Chuck Mikolajczak; Editing by Linda Stern and Dan