The S&P Real Estate Index and the S&P 500 Real Estate Index
Real estate is getting thrust into the spotlight in a big way. What does this mean for investors?
What is the S&P 500 Index?
The S&P 500 Index is a stock market index that tracks the performance of 500 leading publicly traded companies in the United States. Companies must meet certain criteria to be included in the index, which is maintained by Standard & Poor’s, an investor data and market research provider.
The index is capitalization-weighted, meaning that companies with larger market caps have a greater effect on the overall index. Market cap figures are frequently published on financial websites, making it easy for investors to track the weighting of individual stocks.
Investors can invest directly in the S&P 500 through funds that track the index. ETFs such as SPXL and SPXS are popular options. Alternatively, investors can also use leveraged ETFs like Direxion’s SSO or ProShares’ UPRO to gain three times the daily return of the index. This is a common strategy for traders looking to hedge their exposure to rising interest rates. Traders should be aware that this strategy can increase risk and volatility.
What is the S&P Real Estate Investment Trust (REIT) Index?
REITs are public companies that own and, in some cases, operate income-producing real estate. They trade like stocks on the major exchanges and offer a liquid method of investing in property. They typically provide high dividend yields and are a good source of diversification. They also offer relatively low correlations with equities and can boost return potential by adding income-producing property to a portfolio.
REITs have outperformed the stock market over the long term, and individual REIT subgroups often deliver even better returns. Self-storage REITs, for example, have beaten the S&P 500 total return since Nareit began tracking them in 1994. Meanwhile, industrial REITs such as Prologis have benefited from robust warehouse demand from online retailers.
As of August 31, real estate will become its own sector in the S&P 500, replacing telecommunications as the 11th one. This is a historic move that signals that investors are taking the growing importance of this asset class seriously.
What is the S&P Global Real Estate Index?
The S&P Global Real Estate Index is designed to measure the investable universe of publicly traded property stocks (both REITs and REOCs). This includes companies primarily engaged in real estate operations, but excludes those with business activities other than direct real estate ownership or management. The index is constructed using an investable weighting approach, whereby equities in companies that derive the majority of their income from real estate are weighed more heavily than those with less significant or diversified income sources.
This index is part of the S&P Global BMI Select Sector Indices, a family of highly liquid, global benchmarks that track major economic sectors, with stock classifications based on the GICS® standard. Each index is capped to ensure that the number of stocks represents a meaningful sample of companies within its sector. Our global property and REIT indices are widely used as benchmarks for the performance of publicly listed real estate firms, and provide an efficient way to gain exposure to these assets without sacrificing liquidity benefits of listed equities.