Mutual funds are about to get much more real.

A big change is coming in how stock indexes measure the market, one that’s likely to push tens of billions of dollars into real-estate investments, according to estimates.

advertisement | advertise on newsday

The deluge of cash is the result of a re-think by index providers about how they see the market’s construction. The Standard & Poor’s 500 and other indexes have long split the market into 10 main sectors, such as technology companies or utilities or industrials. After the market closes on Aug. 31, S&P Dow Jones Indices and MSCI will carve out real estate to become the 11th sector.

For investors who own only broad index funds, the change won’t mean much. Real-estate investment trusts, which own apartments, office buildings and shopping malls, will still make up about 3 percent of the S&P 500.

The change is much more than housekeeping for actively managed mutual funds.

Nearly 40 percent of large-cap core fund managers have no real estate investments, according to a review by Goldman Sachs strategists.

advertisement | advertise on newsday

And yet active managers pay close attention to how indexes are constructed. If their portfolios are very different, they’ll need to explain why to their investors.

What to know about the change:

  • The wave has already begun

Estimates vary widely on how much REIT buying the index changes will drive, but most are big. They range from about $10 billion to 10 times that.

“It’s a tsunami,” says Mike Underhill, portfolio manager at the RidgeWorth Capital Innovations Global Resources and Infrastructure fund, which owns several REITs.

advertisement | advertise on newsday

He’s recently noticed prices doing better than he’d typically expect for REITs that operate in areas where renters are falling behind on rents. He attributes that to mutual funds buying REITs in advance of the index shift.

  • Already strong performance

The expected jump in demand could help keep REIT prices high, even after their strong performance both this year and since the stock market bottomed in March 2009.

Investors have been buying REITs in part because they offer relatively big dividends at a time when bond yields are low.

  • Worries and consequences

All the demand for REITs in recent years, though, means their prices have climbed not only on an absolute level but also relative to how much cash their businesses are producing. The jumps have been big enough that some investors call REITs overly expensive, while others say they’re fairly valued. Most fund managers agree that REITs are no longer cheap.