(FORTUNE Magazine) – The torrents of spring have brought a spate of bad news for investors in the stock and bond markets alike. Over two weeks ending March 31, the Dow lost 6.6% as yields on 30-year Treasuries shot up to 7.1%. While no one knows where the markets will go from here, rest assured of more stormy weather. Of course, investors can crawl under a stone: Money markets and CDs offer safety, but they also guarantee capital erosion as inflation and taxes take their toll. There is a better place to seek shelter from market storms. Specifically, in apartments, malls, and industrial parks -- the types of properties owned and operated by real estate investment trusts (REITs). The Lehman Brothers Equity REIT index, though hardly immune from the maelstrom of stock and bond market forces around it, is still up 3% for the year to date. And some kinds of REITs have bested even that performance handily: Those that run outlet centers or mobile-home parks, for example, are up 9% and 5%, respectively, so far this year. Declares analyst Steve Hash of Lehman Brothers: "We're incredibly bullish on REITs to start with, plus investors get the benefit of a defensive play." The REIT rally is built on solid foundations. After a seven-year bear market, the consensus is that real estate turned the corner last year. Despite a flood of new offerings that more than doubled the capitalization of the REIT market to $35 billion, rising occupancy rates helped REITs muster a 21% total return to investors. Better yet, there is no surge in building activity, so rents are beginning to inch up. All this momentum seems likely to carry the REIT rally forward for the rest of this year, despite some recent price weakness. Says Chairman Richard Wollack of Liquidity Financial Group, an investment firm in Emeryville, California: "It's a wonderful buying opportunity." Don't make the mistake of thinking of REITs as interest-rate-driven gizmos. While they may have served as stand-ins for bonds last year, REITs often move independently of bond rates. Indeed, the very news that sent bond prices tumbling in recent months -- reports of a strengthening economy -- is good for REITs. Occupancy rates tend to increase as business picks up, and as the CPI creeps higher, rents are typically adjusted upward. And because higher interest rates make raising capital for new construction more expensive, properties held by REITs can eventually demand higher rents as space becomes tighter. A REIT portfolio should include at least five or six stocks, and investors' total exposure should be no more than 15% of his or her portfolio. For investors without the money or inclination to buy REITs directly, mutual funds like Fidelity Real Estate Investment Portfolio and the Cohen & Steers Realty Shares fund offer diversity and have no sales load. They returned 11% and 15%, respectively, over the past 12 months. As with any investment, the higher the promised return, the greater the risk. So avoid REITs with current yields above 9%. It makes sense to spread your bets geographically and across two or more sectors like apartment buildings and shopping malls, but be wary of REITs that dissipate their expertise in unrelated types of property. A study by Kemper Securities showed that a group of broadly diversified REITs averaged a ten-year annual return of just 3%, compared with 19% for a group of specialized REITs. Says analyst Burl East of Kemper Securities: "Diversification in a REIT is a recipe for mediocrity." One REIT that sticks to its knitting is Post Properties. Almost 70% of its apartment complexes are near its Atlanta headquarters. It targets upscale renters and knows what they want: Communities are typically within a five- minute drive of business centers, so commutes are short. Post also details its properties with touches like tulips and offers services like video rental. Know who is running the show. Says Fidelity real estate fund manager Barry Greenfield: "Real estate may be about location, location, location, but the REIT business is about management, management, management." Many a happy investor has followed in the footsteps of Sam Zell, co-chairman of Manufactured Home Communities in Chicago, which owns upscale trailer parks. Since its public offering last February, the REIT's shares have risen from $26 to $42 as the company has bought up additional parks at attractive prices. A prospectus should also tell you how long management has run the company before it went public: Look for a track record of at least five years. Corporate officers should hold a hefty stake in the REIT -- at least 10% to 15% -- so that their interests are aligned with yours. Insiders own more than 40% of Simon Property Group, which runs 54 regional malls nationwide. Fidelity's Greenfield thinks it can produce a total return of 17% to 20% over the next 12 months. Expending some shoe leather can uncover problems before you invest. If a REIT manages a nearby shopping center, spin by and give it a gander: Empty Thunderbird bottles in the parking lot are not a good omen. Thriving anchor tenants are. Macerich REIT of Santa Monica, California, owns malls in Western states and benefits from the presence of successful retailers like J.C. Penney. That's helped keep occupancy rates above 91% for the past five years, despite a downbeat economy. Beware high debt. Those seeking safety should see that a REIT's IOUs do not amount to much more than 40% of total market capitalization. And investors should shun REITs with adjustable-rate debt unless it is capped at relatively low levels. REITs concentrated in the Southeast and Southwest have been bid up the most over the past year and a half, so investors may want to look into some of the slowpoke regions for a bargain. Portfolio manager Cydney Donnell of European Investors likes Spieker Properties, which concentrates on California's industrial buildings. Tainted in investors eyes by the Golden State's economic doldrums as well as its lackluster market for industrial space, Spieker's 7.6% yield makes biding time more enjoyable. The kicker is that the REIT enjoys a healthy 92% occupancy rate and most of its ties are in the relatively robust Bay Area.

CHART: NOT AVAILABLE CREDIT: FORTUNE TABLE CAPTION: FIVE REITs WITH BRIGHT FUTURES