Although property funds have significantly reduced their leverage in the last four years, AREF added, leverage has still done nothing to boost their returns in the last quarter.
Highly-leveraged funds saw an average cumulative fall in returns of 22% over the four-year period, while low-leveraged posted an average cumulative fall of -6%.
Specialist real estate funds outperformed their balanced counterparts for seven consecutive quarters, AREF said, due to higher gearing and superior income returns.
In its Investment Quarterly AREF said specialist funds were displaying higher distribution yields compared to balanced funds and the gap between the two was the largest since Q2 2009.
AREF added, however, that returns from specialist funds were more volatile than balanced funds, since every balanced fund saw a positive total return in the second quarter of this year.
Property funds in general have significantly reduced their leverage over the four year period, with highly-leveraged funds bringing their loan-to-value (LTV) ratios down by 42% on average.
This took the LTV for highly-leveraged funds down to an average of 45% in the second quarter of this year from 87% in the same period in 2007.
Despite this reduction in LTV ratios though, the overall effect of leverage and porfolio restructuring has taken its toll on fund performance.
Investors are still piling in, however, and new money raised in the Q2 was £609 million, which represented the first quarter-on-quarter increase since the fourth quarter of 2009.
John Cartwright, chief executive of AREF, said: "The second quarter of 2011 shows the growing importance of income returns, which have propelled specialist funds to higher performance than balanced funds over seven consecutive quarters.
"Our figures suggest that investors are not cashing out of property. New money raised in Q2 saw its first quarter-on-quarter increase since Q4 2009, reflecting investor’s continued interest in the asset class."
