Laszlo Birinyi Isn’t Bullish on Upcoming S&P Real Estate Sector

Fund manager and financial pundit Laszlo Birinyi isn’t a fan of the fact that Real Estate will soon be split from Financials into its own sector.

Saying the move is designed “to the benefit of the vendor and not the customer,” Birinyi notes that investors already have plenty of options when it comes to investing in real estate indexes, including several REIT ETFs.

Standard & Poors plans to split real estate from financials next month into what will become the 11th S&P sector. From MarketWatch:

S&P Dow Jones Indices and MSCI, announced in March 2015, carves 28 real-estate investment trusts and real estate management and development companies out of the financial sector and lets them stand alone as their own sector. Real estate shares will become the S&P 500’s SPX, -0.28% 11th sector sometime in mid September. Mortgage REITs will remain part of the financial sector, which includes banks and insurance firms.

Birinyi also notes that he’s none too bullish on REITs right now, which are up 348% from the 2009 bottom. “Not a compelling purchase,” he notes.

Birinyi compares the S&P’s new move to when Apple was added to the Dow Jones Industrial Average a few years ago, following a huge uptick off the 2009 lows. Apple is the worst-performing name in that index, with a total return of negative 12.9% since becoming part of the Dow.

The S&P says it’s making the move to meet increased investor interest in the real estate sector. Investors have flocked to high-yielding REITs in the modern zero-percent interest rate environment.

VNQ-2016-08-30

The Vanguard REIT Index Fund (NYSE:VNQ) fell $0.61 (-0.68%) to $88.49 per share in morning trading. VNQ, which is currently the largest real estate-focused fund based on assets, has risen about 11% year-to-date, outpacing the S&P 500’s 7% rise in the same period.