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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 (SPY) but have now received a giant promotion.

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

(Audio) How would your investment portfolio do in a 50% market decline?

The new ETF – the Real Estate Select Sector SPDR ETF (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 (RWR) because of its primary focus on a small pool of U.S. large-cap REITs. In contrast, RWR owns 97 U.S. based REITs with a market cap size that is large, mid, and small. Additionally, XLRE does not hold mortgage REITs (REM).

SPDR Data
SPDR Data

The GICS method was created by MSCI and Standard & Poor’s in 1999 and is a four-tired, hierarchical classification system. GICS allows investors to identify and analyze a customized group of companies using a common global standard.

The existing Financial Select Sector SPDR Fund (XLF), which follows the broader financial sector, will not be impacted by the change. Both real estate and financials will continue to be covered inside XLF and remain a choice for investors looking for broad-based exposure to financials.

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