There’re few things more exciting than debating about the merits of Australia’s two biggest asset classes on the weekend!

In case you missed that, I am being sarcastic – although the COVID-19 crisis is an opportune point to review your asset allocation.

There have been comments by experts in the press recently that property bears are wrong and that house prices will stay flat or dip by 5% or less right through the pandemic.

Property vs. shares

If those arguments hold true, property could make a better option than shares, particularly for those who can’t stomach the volatility or are close to retirement.

But there are a few holes in the logic that need to be examined more closely. One of the key arguments from property bulls is that gross rental yields of 5% is very attractive in this near zero-interest rate environment.

The many meanings of the word “gross”

The issue I have is that the “gross” means different things when it comes to property and shares. For investment properties, gross rental is the amount the landlord gets before expenses.

This means the actual (or net) return is always going to be lower. The opposite is true for shares that pay franking credits where the net return is before franking.

Skinny risk-adjusted yield

What this means is that a residential investment property with a gross yield of 5% will likely generate a 2% net return after you pay the rental agent, mortgage, insurance, property taxes, council rates and other operating expenses.

And this assumes you don’t get a vacancy in that current financial year. If you did, you’ll lose another two to three months of rent depending on how long it takes you to find a tenant in this market.

That’s a pretty skinny return, especially if you can get 1% on some bank deposit products – risk free!

How dividend yields stack up to rental yields

Property supporters will point to the falling dividend yield on the S&P/ASX 200 Index (Index:^AXJO), no thanks to the big banks like National Australia Bank Ltd. (ASX: NAB) no doubt!

Nonetheless, even if we assumed a 30% dividend cut across the ASX 200, the net yield is still likely to be over 3% net, or just over 5% gross.

We also shouldn’t forget that rents are falling due to the swelling ranks of the unemployed. Many of them may need more than six months to get back on their feet and I believe this will have a big impact on property prices and their ability to get a home loan.

Reasons to stick to property

There are only two possible reasons why an investor will favour residential rents over share dividends. The first is because negative gearing makes it worth their after-tax while. The other is to bank on rising property prices.

If the yield argument is removed, and if you don’t buy the “V” shape recovery for jobs or a resurgence in immigration, then the outlook for home property prices looks bleak.

This is less so for shares as the stimulus from the central bank will have a more direct positive impact on financial assets than real assets.

Whoever coined the term “safe as houses” might need a rethink.

More reading

• These were the best performing ASX 200 shares last week
• Buy these ASX 200 shares for your kids today
• 2 ASX shares for a first-time investor
• ASX 200 finishes up 1.4%, gold miner share prices surge
• The next ASX sector in a post COVID-19 earnings upgrade cycle

Motley Fool contributor Brendon Lau owns shares of National Australia Bank Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) was on form last week and recorded a 0.25% gain to finish at 5404.8 points.

While a number of shares pushed higher, some climbed more than most. Here’s why these were the best performing ASX 200 shares last week:

The Pilbara Minerals Ltd (ASX: PLS) share price was the best performer on the index last week with a 19.9% gain. This was despite there being no news out of the lithium miner. Some investors may believe its shares have bottomed after falling extremely heavily over the last 12 months. Even after this strong gain, Pilbara Minerals’ shares are down 70% over the period. One broker that isn’t convinced that now is the time to buy is Macquarie. Earlier this month it slapped an underperform rating and 10 cents price target on its shares.

The Southern Cross Media Group Ltd (ASX: SXL) share price wasn’t far behind with an 18.5% gain. This gain appears to have been driven by another broker note out of Macquarie. Its analysts have reinstated coverage on the media company’s shares with an outperform rating and 18 cents price target. It notes that its balance sheet has been strengthened by its capital raising and believes it is well-placed to benefit when ad markets recover.

The Resolute Mining Limited (ASX: RSG) share price was a strong performer and climbed 14.2% last week. Investors were buying Resolute’s shares last week after the gold price surged higher. The precious metal jumped to a three-week high due to stimulus hopes and concerns that a trade war could be brewing between the U.S. and China. A number of other gold miners were close behind including Saracen Mineral Holdings Limited (ASX: SAR) and St Barbara Ltd (ASX: SBM).

The Graincorp Ltd (ASX: GNC) share price was the next best (non-gold miner) performer with a 9.2% gain. This followed the release of a better than expected half year result from the grain exporter. For the six months ended March 31, Graincorp delivered an underlying net profit after tax of $55 million. This was a massive improvement from its $48 million net loss after tax in the prior corresponding period.

More reading

• Are rental yields better than dividend yields?
• Buy these ASX 200 shares for your kids today
• 2 ASX shares for a first-time investor
• ASX 200 finishes up 1.4%, gold miner share prices surge
• The next ASX sector in a post COVID-19 earnings upgrade cycle

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post These were the best performing ASX 200 shares last week appeared first on Motley Fool Australia.

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