With high levels of volatility once again dominating equity market action, investors looking for a somewhat less gut-wrenching ride may want to take a look at the real estate investment trusts (REITS) that trade in the United States. As investment trusts, REITs are obliged by law to payout at least 90% of their income in the form of dividends. As a result, they tend to generate stable and consistent income returns to investors; a feature which normally tends to mitigate against excessive price volatility.

TUTORIAL: Exploring Real Estate Investments

An Interesting Niche Play
Recently, the REITs had been on a tear. The year-to-date return for the group has been double digits gains. That's well ahead of the 6% gain eked out by the S&P 500 index over the same period. One interesting sub-sector in the larger REIT group, are the providers of self-storage space. This includes companies like Public Storage (NYSE:PSA), Extra Space Storage (NYSE:EXR), Sovran Self Storage (NYSE:SSS) and U-Store-It Trust (NYSE:YSI). Self storage is a real estate niche play that's less sensitive to the credit market see-saws and declining property values than affect other REITs.

In fact, the group tends to be relatively resilient to economic downturns. This maybe be because when tough times occur, people's circumstances can sometimes change. Even confronted with a divorce, downsizing or foreclosure, folks tend not to get rid of what they have, and turn to self storage for their overflow.

While the self-storage sub-group did suffer in 2009, improved cost controls and promotional discounts designed to keep occupancy levels up allowed these companies to report expectations beating results for the final quarter of 2009. Likewise, this trend countinued in 2010, as many of these companies met or beat analyst expectations.

CompanyMarket CapYTD Return
Public Storage 20.11B+16.29%
Extra Space Storage1.88B+21.61%

Sovran Self Storage

U-Store-It Trust1.09B+15.42%

The Bottom Line
The stomach churning market gyrations of recent days will continue to produce attractive valuations for those stocks and sectors that may not warrant the sort of deep price discounts emerging from the turmoil. Niche plays like the storage REITs could be one such group. (For more, see What Are REITs?)

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Tickers in this Article: YSI, PSA, EXR, SSS

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