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One Thing To Consider Before Buying Lanesborough Real Estate Investment Trust (TSX:LRTUN)

If you are looking to invest in Lanesborough Real Estate Investment Trust’s (TSX:LRT.UN), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. There are two types of risks that affect the market value of a listed company such as LRT.UN. The first risk to consider is company-specific, which can be diversified away when you invest in other companies in the same industry as LRT.UN, because it is rare that an entire industry collapses at once. The second type is market risk, one that you cannot diversify away, since it arises from macroeconomic factors which directly affects all the stocks in the market.

Not every stock is exposed to the same level of market risk. A popular measure of market risk for a stock is its beta, and the market as a whole represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.

View our latest analysis for Lanesborough Real Estate Investment Trust

An interpretation of LRT.UN's beta

With a beta of 2.83, Lanesborough Real Estate Investment Trust is a stock that tends to experience more gains than the market during a growth phase and also a bigger reduction in value compared to the market during a broad downturn.Based on this beta value,LRT.UN can help magnify your portfolio return, especially if it is predominantly made up of low-beta stocks. If the market is going up, a higher exposure to the upside from a high-beta stock can push up your portfolio return.

TSX:LRT.UN Income Statement Sep 8th 17
TSX:LRT.UN Income Statement Sep 8th 17

Does LRT.UN's size and industry impact the expected beta?

LRT.UN, with its market capitalisation of CAD $513.93K, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the real estate industry, which has been found to have high sensitivity to market-wide shocks. So, investors should expect a larger beta for smaller companies operating in a cyclical industry in contrast with lower beta for larger firms in a more defensive industry. This is consistent with LRT.UN’s individual beta value we discussed above. Fundamental factors can also drive the cyclicality of the stock, which we will take a look at next.

Can LRT.UN's asset-composition point to a higher beta?

During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta.I test LRT.UN’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint.LRT.UN's fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice.Thus, we can expect LRT.UN to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. Similarly, LRT.UN’s beta value conveys the same message.

What this means for you:

Are you a shareholder? You could benefit from higher returns from LRT.UN during times of economic growth. Its higher fixed cost isn’t a major concern given margins are covered with high consumer demand. However, in times of a downturn, it may be safe to look at a more defensive stock which can cushion the impact of lower demand.

Are you a potential investor? Before you buy LRT.UN, you should factor how your portfolio currently moves with the wider market, and where we are in the economic cycle. This stock could be an outperformer during times of growth, and it may be worth taking a deeper dive into the fundamentals to crystalize your thoughts on LRT.UN.

Beta is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Lanesborough Real Estate Investment Trust for a more in-depth analysis of the stock to help you make a well-informed investment decision. But if you are not interested in Lanesborough Real Estate Investment Trust anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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