SPDR S&P/ASX 200 Listed Property (ASX: SLF) is a good option for exposure to Australian REITs. However, investors should note that narrowness in the market leads to a top-heavy portfolio.

The strategy aims to fully replicate the S&P/ASX 200 A-REIT Index, a benchmark consisting of around 20 predominantly large-cap Australia-listed property names as of Sept. 30, 2025. The Australian REIT market is concentrated, with the top 10 holdings in the index accounting for about 89% of the portfolio. The index concentration has become increasingly skewed owing to the remarkable performance of Goodman Group’s stock over the past five years. The stock now constitutes approximately 38% of the portfolio.

Given the limited opportunity set and challenges in generating alpha net of fees, passive strategies remain our preferred approach in this Morningstar Category. Most active managers stay close to the index weightings, with only a few taking significant active positions. This makes low-cost index funds more attractive in such concentrated markets. However, it should be noted that passive funds do not have the potential downside protection that a well-managed active manager can offer. The index is not prone to frequent changes; turnover is in the low single digits, keeping transaction costs minimal. However, the lumpy nature of the portfolio’s composition may lead to churn because of corporate actions or other changes resulting in index reconstitution. State Street has a lengthy history of seamless execution and maintains a consistently low tracking error for the strategy.

This fund offers a well-constructed, representative portfolio at a low cost, which is supported by State Street’s proven track record as an index tracker.

A consistent and reliable process for tracking the index

SPDR S&P/ASX 200 Listed Property aims to fully replicate the S&P/ASX 200 A-REIT Index. REITs are listed vehicles that own and operate property. They are required to pass on the majority of their income to investors to enjoy favorable taxation arrangements, and distributions are not franked.

High payout ratios and an absence of franking mean that REITs typically offer a high headline yield relative to other stock market sectors. SPDR doesn’t participate in securities lending for Australian ETFs. Index changes are infrequent, but in a concentrated sector such as property, they could be lumpy if there are changes in the index constitution owing to corporate activity. Portfolio turnover has typically been low but may spike during reconstitution, considering the lumpy composition. To reduce shareholder dilution and protect yield, SPDR holds company dividends in cash and distributes them to shareholders quarterly. While the passive approach means the strategy is likely to wax and wane with the index, it offers a low-cost and efficient way to access the Australian listed property market.

The Australian listed property market is quite narrow, raising concentration risks in the index and the portfolio. As of September 2025, the S&P/ASX 200 A-REIT index consists of 20 listed holdings, with the top 10 accounting for about 89% of the total portfolio. Over the past five years, the exposure to the largest current holding, Goodman Group, has ballooned to about 38% as of September 2025 from less than 28%. However, in the case of an eventual entry or exit of the constituents, the concentrated index is susceptible to reconstitution, which may lead to a meaningfully altered portfolio. Up until 2021, earnings-per-share growth was propelled by the falling cost of debt, and price appreciation compressed REIT yields. However, starting in the latter half of 2021 through 2022, rising interest rates, the risks of global inflation, and economic slowdown have been a drag on the entire real estate space. The growth in the sector has seen a resurgence in 2024 as the macroeconomic uncertainty reduces and central banks signal potential rate cuts.

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