Brian Zwerner of Kensington Blake Capital Reviews the Two Income Investment Opportunities

January 2, 2015

Kensington Blake Capital’s Managing Principal Brian Zwerner examines two important income producing

investment opportunities – MLPs and leveraged loans. While both carry risk in the current market, both

appear to offer enough return potential to compensate for these risks.

Master Limited Partnerships (MLPs) are partnerships that trade like stocks on the equity exchanges.

Most of the publicly traded MLPs are involved in the energy markets in some capacity. These include

energy pipelines, refineries, and exploration companies. MLPs tend to pay a high dividend rate to

investors.

One of the best ways for investors to participate in the MLP market is through the Alerian MLP ETF

(ticker: AMLP). This fund has over $10 Billion in assets and good daily trading volume. The holdings are

capitalization weighted in 25 large energy MLPs. The largest holdings are: Enterprise Products Partners,

Kinder Morgan Energy Partners, and Energy Transfer Partners. The share price of AMLP traded in a

range in 2014 from a high of $19.34 in September to a low of $16.38 in December. However for the year

the price was roughly unchanged around $17.50/share. The dividend yield is approximately 6.5% on this

fund. Our team has a significant holding in AMLP.

Corporate leveraged loans are another interesting income producing investment opportunity.

Leveraged loans are senior secured loans made to generally larger, non-investment grade companies.

These loans can be purchased through closed end mutual funds, two of the larger ones are the

Blackstone GSO Senior Floating Rate Fund (ticker: BSL) and the Apollo Senior Floating Rate Fund (ticker:

AFT). These funds are managed by large investment firms with significant resources to evaluate the

loans they purchase. The funds employ an amount of leverage, typically up to 33%, which increase the

return opportunity and risks. The funds have produced a dividend rate recently in the 7% range.

Another way for investors to get exposure to leveraged loans is through an investment company called

Oxford Lane (ticker: OXLC). This company purchases Collateralized Loan Obligations (CLO) that are

backed by leveraged loans. This strategy is more leveraged and risky that leveraged loan closed end

funds, but the dividend rate is much higher at over 15%. Our team has a significant holding in the funds

and stocks listed above.

Commentary by Brian Zwerner, Managing Principal, Kensington Blake Capital, LLC.

www.kensingtonblakecapital.com