After the October, 1987, market crash, some investors turned to real estate to protect their capital, though the resurgence of equity funds has since cooled their enthusiasm for real estate mutual funds.

But with Friday's drop of almost 200 points in the Dow Jones industrial average and about 150 points in the Toronto Stock Exchange 300 composite index, investors might take another hard look at these funds.

In the six months to September, the top five equity funds chalked up an average return of 26.5% while the average return for Canada's five real estate funds was 5.3%.

In the longer term, Counsel Trust Real Estate is the best-performing real estate fund with a five-year compounded return of 15.3% to September and a three-year compounded return of 14.5%.

But the wealthiest people in the world have always made at least part of their money through investments in real estate, a U.S. fund manager points out.

And the new way to buy real estate is in a ''securitized form,'' says Allen Parker, portfolio manager of United Services Real Estate Fund, based in San Antonio, Tex. His no-load mutual fund invests in real estate limited partnerships, companies rich in real estate and real estate investment trusts (REITs).

Since its inception two years ago, Parker's small US$7-million fund has been the top-performing U.S. real estate fund, with a return of 20.48% in 1988. In the first nine months of 1989, the fund racked up a return of 16.8%.

Parker attributes his success to property-specific and region-specific real estate investments. He avoids companies, limited partnerships or investment trusts that ''want to be everywhere and everything.'' They are ''bound to hiccup.''

Hot regions in the U.S. are Las Vegas for residential properties and San Diego for both residential and commercial properties, Parker says. He also likes the mid-Atlantic region, particularly the Washington-Baltimore corridor, and Florida.

In terms of properties, Parker likes ''recession-proof'' strip shopping centres, anchored by discount drug and grocery stores. He also buys shares in real estate investment trusts holding health-care properties.

Federal Realty Trust tops his REITs shopping list. The trust holds seven million square feet of shopping centre space in the mid-Atlantic region. Occasionally, Parker also buys shares in companies with hidden real estate like Northwest Airlines, which owns choice Japanese properties, and movie house MCA.

In Canada, Parker is eyeing Counsel Corp., which through wholly owned subsidiary Counsel Property Corp. is ''as pure a Toronto real estate play as he can find.'' Through subsidiary FirstLine Trust Co., Counsel Corp. also has a ''stranglehold on the mortgage-backed securities market.''

And wholly owned Counsel Trust Corp. boasts the top-performing Canadian real estate mutual fund. Its rivals include MD Realty A, First City Realfund, Guaranty Trust Property and Investors Real Property funds.

Canadian real estate funds invest primarily in income-producing commercial real estate properties. The return on these funds includes income as well as capital gains from the change in value of the underlying properties.

These funds differ from other mutual funds in three ways: they use borrowed capital as well as investors' capital to purchase properties, are valued on appraisals, and are less liquid than the other funds.