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Sincerely, Peter Switzer Inside this Issue 02 Dump gold, buy stocks Buy the S&P 500? by Peter Switzer 04 This Fund will suit some, but it’s complicated KKR Credit Income Fund by Paul Rickard 07 3 stocks for your cellar CSL, ALU & VHT by James Dunn Dump gold, buy stocks 09 Buy, Hold, Sell – What the Brokers Say 12 downgrades, 5 upgrades by Peter Switzer by Rudi Filapek-Vandyck 02 11 My “HOT” stock ING by Maureen Jordan Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before Switzer Super Report is published by Switzer Financial Group Pty Ltd AFSL No. 286 531 acting, consider the appropriateness of the information, having regard to the Level 4, 10 Spring Street, Sydney, NSW, 2000 individual's objectives, financial situation and needs and, if necessary, seek T: 1300 794 893 F: (02) 9222 1456 appropriate professional advice. Dump gold, buy stocks by Peter Switzer Why is gold losing friends? It can’t be oversupply, so Percy’s gold suggestion have been in the money, it has to be a belief that market smarties are backing however, as the table below shows, the monitoring in a trade deal or at least no escalation of the process has downgraded gold for the S&P 500 Index, tit-for-tat tariff tussle between President Trump and which is captured in IVV. This is iShares ETF for the Beijing. This is the five-day move in the gold price Index. and it clearly reinforces my point. Source: markettimingaustralia.com.au On May 12, Percy’s indicators recommended selling IVV and buying GOLD, which was very timely, as the chart below shows. There was an enormous spike in the gold price as Donald Trump and his tariff To be honest, I’m no gold expert because the tantrums, the bond yield curve inverted and the Fed commodity doesn’t play fair or more correctly, I can’t virtually told us that interest rates were on the slide to pick where it might go. try and beat the threat of a recession. One guy who tries to do just that is Percy Allan, who once headed up the New South Wales Treasury Department. He didn’t like his personal outcome from the GFC stock market crash. He founded the website monitoring service —www.markettimingaustralia.com.au — and what it told me over the weekend quite surprised me. For quite a long time this year the indicators that he and his colleague survey had three recommendations of buy the local STW exchange traded fund to be long the S&P/ASX 200 Index. In contrast, the key indicators suggested locals should buy the ETF with the code GOLD and for those playing the world, Source: Goldbroker.com GOLD was the preferred option. Those who followed Wednesday 02 October 2019 02 And now the myriad of numbers, stats and market service is a ripper. readings that go into Percy’s analysis are effectively saying “dump gold and buy the S&P500 Index!” Right now I’m going longer stocks and dumping gold. And I hope I can stay that way! This is an important test of his market indicators and how they can interpret the conniving tweets and Important: This content has been prepared without negotiations of Donald Trump and his team, not to taking account of the objectives, financial situation or mention the wrangling of the leadership team under needs of any particular individual. It does not Xi Jinping. constitute formal advice. Consider the appropriateness of the information in regard to your Certainly, technical chart analysis tries to pick up the circumstances. weight of money movements as a sign of what smarties or insiders are doing and thinking. And undoubtedly, the body of work that underpins what Market Timing Australia produces is trying to tap into similar trends. It has always been my base case that Donald Trump would want a trade deal before the end of the year to get enormous momentum going into the period of time that’s best for stocks i.e. November to April, in the year that’s best for stocks i.e. the third year of a US President and we’re in one of them right now. Sure, I know Donald will play the cards that the Chinese deal him but with a slowing economy, the Chinese right now look like they want to contain this threat to their economic, social and political stability. The Guardian today made the point: “China is stepping up its efforts to protects its economy from the ongoing damaging trade war with the US, ahead of fresh talks to resolve the dispute next month. The PBOC’s pledge came as the Chinese vice-commerce minister, Wang Shouwen, said Beijing would open up more sectors of the economy to foreign investors. Wang also announced that Beijing will send its top negotiator, vice-premier Liu He, to lead negotiations with the US in early October.” Recent economic data has shown that the tariffs are hurting China’s economy. Over half its exports to the US have been slugged with Trump tariffs, car sales have fallen in 14 of the last 15 months and factory output is at a 17-year low! Keep your fingers crossed that the October 10 trade talks in Washington become the timely circuit-breaker that creates a trade truce and a stock market spike, while showing us that Percy’s market-watching Wednesday 02 October 2019 03 This Fund will suit some, but it’s complicated by Paul Rickard There is an old but trusted adage in investing – don’t over-subscriptions) through the issue of units priced invest in something that you don’t understand. And at $2.50. for many investors who contemplate investing in the new $750m KKR Credit Income Fund, this could well The Fund will initially invest the proceeds in KKR’s prove to be the case because this is a complex Global Credit Opportunities Fund, before deploying investment. up to 50% into KKR’s European Direct Lending Fund. By the end of 2020, it is expected that the split The investment objective, however, is relatively between the two funds will be roughly 50/50. straightforward. This ASX listed investment trust aims to provide investors with attractive, risk adjusted The Global Credit Opportunities Fund, KKR’s returns and access to a diversified portfolio of income flagship fund, seeks to invest opportunistically in generating alternative credit investments with a focus relatively liquid credit investments based on KKR’s on capital preservation through geographic and asset assessment of risk-adjusted returns. It invests class diversification. The trust targets a net return of globally, focussing on traded loans and bonds in a 6% to 8% pa. with a target cash yield of 4% to 6% pa senior position. Currently, the fund size is $2.1bn (in through the market cycle. an overall market size estimated to be $3 trillion). Over its 11 years since inception, it has returned an But the complexity comes from the Trust investing in average of 10.8% pa. two quite different KKR (Kravis Kohlberg Roberts) managed funds, different times as to when the funds The European Direct Lending Fund invests in are deployed, the second fund being quite illiquid, non-traded loans. Primarily, these are sought by and the delay investors will face in being appraised of middle market companies with earnings of around the fund’s true NTA (net tangible asset value). €50m to €100m. KKR argues that the major Further, it is riddled with conflicts of interest. European banks have abandoned this space, and the loan size is too big for the regional players. The On the flipside, investors are essentially backing the market size is estimated at $118bn and KKR is credit expertise of the KKR team and arguably, targeting 30 to 40 loans when the fund is fully conflicts are unavoidable. Further, KKR argues that a operating in 2020. A target size for the fund is around strength of the proposition is its alignment with the $1.5bn. Because the lending is direct, the loans interests of unitholders as KKR and its employees won’t be liquid and nor is the fund. use their own capital to invest in the managed funds. When the KKR Credit Income Trust is fully Here is our road test of the KKR Credit Income Fund. established, it is expected to be invested 50% in traded credits (through the Global Credit The fund Opportunities Fund) and 50% in private credits (through the European Direct Lending Fund). Traded The KKR Credit Income Trust will be listed on the credits are loans, bonds or other debt securities ASX and trade under ticker code KKC. It is seeking to issued by larger companies that are syndicated to a raise a minimum of $200m and up to $750m group of lenders, and which can be traded in a (although it can take another $75m in secondary market. Private credits are bilateral loans Wednesday 02 October 2019 04 between a lender and a borrower, with no or limited The Manager is also entitled to a performance fee of syndication.