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Safe 11% Annual Return With Cleco

Summary CNL offers an escape from market volatility. It also offers a double digit arbitrage yield. Here is why I own it and you might want to, too. Safety first! Deal Target Description Cleco (NYSE: CNL ) is a public utility holding company with subsidiaries that provide retail and wholesale electricity in Louisiana and Mississippi. It owns natural gas pipelines and interconnections at all generating facilities. Deal Terms On October 20, 2014, CNL announced a definitive deal to be bought by a group led by Macquarie Infrastructure and Real Assets/MIRA and British Columbia Investment Management Corporation/bcIMC, along with John Hancock Financial and others for $55.37 per share in cash. Deal Financing The deal is not conditioned upon the receipt of financing. The target is working with Goldman Sachs (NYSE: GS ) on the deal. Deal Conditions The deal is subject to normal closing conditions, including the approval of CNL shareholders, the approvals of the Louisiana Public Service Commission/LPSC and the Federal Energy Regulatory Commission/FERC, and HSR antitrust clearance. Deal Price There is currently a net spread of about $1.63 which works out to an 11% annual return if the deal closes around early December 2015 as anticipated. The deal price was at a 15% premium to CNL’s previous market price. Deal History Bruce Williamson, CNL’s CEO, is a money maker and a deal guy. So after he was named CEO in 2011, deal speculation started to build. His stock price appreciated by about 30% in his first thirty months in command. Then he began to look to sell. He has a generous package in a change of control. He gets three times his base and bonus in a deal. This was my favorite utility takeover candidate for 2014. By April 2014, Williamson definitively decided to sell. By June, he had hired GS to manage the sale process. Once the LPSC approved CNL’s formula rate plan, there was strong interest in the company from potential buyers. CNL holders approved the deal in February 2015. CFIUS cleared the deal in June 2015. FERC approved the deal in July. The FCC has approved the requisite license transfers. HSR approval was secured. The gating regulatory approval remains LPSC clearance which is expected in the fourth quarter. The hearings are scheduled for November 9-13, 2015. Deal Alternatives If the current deal falls through, alternative buyers for CNL would include American Electric Power (NYSE: AEP ), NextEra (NYSE: NEE ), CenterPoint (NYSE: CNP ), and Iberdrola SA ( OTCPK:IBDRY ). Merger Agreement Specific Performance: The parties agree that irreparable damage may occur and that the parties may not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that, subject to Section 8.11(b) , in the event of any breach or threatened breach by any other party of any covenant or obligation contained in this Agreement, the non-breaching party shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the necessity of posting bonds or similar undertakings in connection therewith, this being in addition to any other remedy which may be available to such non-breaching party at law or in equity, including monetary damages. Material adverse effect on the Company means any change, effect, event, occurrence, development or state of facts (I) that is materially adverse to the business, financial condition, assets, liabilities, results of operations or properties of the Company and its subsidiaries, taken as a whole, but excluding any of the foregoing to the extent resulting from changes in international or national political or regulatory conditions generally (in each case, to the extent not disproportionately affecting the Company and its subsidiaries, taken as a whole, as compared to similarly situated persons), changes in the economy or the financial, commodities or securities markets in the United States or elsewhere in the world or the industry or industries in which the Company or any of its subsidiaries operates (in each case, to the extent not disproportionately affecting the Company and its subsidiaries, taken as a whole, as compared to similarly situated persons), changes or developments in national or regional wholesale or retail markets for electric power, capacity or fuel or related products (in each case, to the extent not disproportionately affecting the Company and its subsidiaries, taken as a whole, as compared to similarly situated persons), changes or developments in natural or regional electric transmission or distribution systems (in each case, to the extent not disproportionately affecting the Company and its subsidiaries, taken as a whole, as compared to similarly situated persons), any changes in law or GAAP or interpretations thereof (in each case, to the extent not disproportionately affecting the Company and its subsidiaries, taken as a whole, as compared to similarly situated persons), any weather-related or other force majeure event or outbreak or escalation of hostilities or acts of war or terrorism (in each case, to the extent not disproportionately affecting the Company and its subsidiaries, taken as a whole, as compared to similarly situated persons), the failure in and of itself of such person to meet any internal or published projections, forecasts or revenues predictions, provided that the exception in this clause (G) shall not prevent or otherwise affect a determination that any change, effect, event, occurrence, development or state of facts underlying such failure has resulted in, or contributed to, a material adverse effect on the Company, the negotiation, execution or announcement of, or compliance with, this Agreement in accordance with the terms hereof (including any adverse changes in the relationship of the Company or its subsidiaries with its employees, independent contractors, customers or suppliers resulting directly therefrom), provided that the exception in this clause (H) shall not apply to the representations and warranties contained in Section 3.01(d) to the extent that the negotiation, execution or announcement of, or compliance with, this Agreement would result in a breach or inaccuracy of the representations and warranties set forth in Section 3.01(d), or any taking of any action by the Company or its subsidiaries at the express written request of Parent, or (ii) that would prevent or materially delay the Company from performing its obligations under this Agreement or consummating the transactions contemplated hereby. Conclusion CNL offers a compelling long opportunity to capture a safe double digit annual return for the remainder of 2015. Disclosure: I am/we are long CNL. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

Persistent Solar And Oil Correlation Presents Huge Opportunities

Summary Solar continues to be heavily correlated with oil in the stock market despite the fact that these two industries are not in competition with each other. The solar market’s recent downturn, likely influenced by falling oil prices, offers investors a huge chance to profit given that solar fundamentals have been stronger than ever. The solar industry has been recording record growth numbers and improving margins, of which have not been fully reflected in the stock market. No matter how many times it has been stated/proven that solar and oil have almost no real world connection, a large stock market correlation continues to exist between these two industries. The solar sector has followed the price movements of oil rather closely over the past year, which has not be pleasant for solar investors. In fact, the Guggenheim Solar ETF (NYSEARCA: TAN ), which captures the broader solar market, experienced a precipitous drop last year at almost exactly the same time that oil began its decline. The ETF then subsequently experienced an upsurge at around the time when oil prices started recovering. Oil prices have collapsed once again over the past few months, which has pushed solar stocks down once again. While solar and oil are not in direct competition, the market correlation between these two stocks is surprisingly strong. This irrational coupling of solar and oil presents some enormous investment opportunities, as the general solar market is incredibly undervalued at the moment. Despite the fact that solar fundamentals are stronger than ever, with leading solar companies generally reporting record growth numbers and growing margins, the solar sector continues to experience downward pressure. Although solar and oil have very little real world connection, oil prices continue to influence solar company valuations to an extremely high degree. This chart depicts the Guggenheim Solar ETF’s price movements along with those of crude oil. Massive Opportunity The recent drop in leading solar names like SunPower (NASDAQ: SPWR ), SunEdison (NYSE: SUNE ), SolarCity (NASDAQ: SCTY ), and Trina Solar (NYSE: TSL ), represents a large investment opportunity. Given that a sizable percentage of these stock declines are likely due to the solar market’s irrational correlation with oil, there is still significant room for growth. In fact, the stock price movements of these companies have almost nothing to do with their actual fundamentals. Trina Solar and SolarCity, for instance, continue to report record growth numbers and yet have declined by ~one-third since oil price started declining again. Even First Solar (NASDAQ: FSLR ), which blew out expectations in its last earnings report, has experienced a slight decline in this period. It is clear that this solar-oil coupling is not going away anytime soon, which makes for great buying opportunities in the solar sector. The Guggenheim Solar ETF represents a good investment choice for those who are not committed to any single solar company. As this solar and oil correlation will likely eventually disappear as investors becomes more astute, this buying opportunity should be short-lived. Improving Fundamentals The solar PV industry continues to fall precipitously on both the utility-scale and distrbuted fronts. As solar is becoming more economical in a growing number or regions and as world leaders increasingly recognize the long-term potential of solar, global demand is soaring to unprecedented heights. The enormous downward pressures faced by solar stocks this past year would suggests that demand is slowing, and yet the exact opposite has been happening. On top of this, leading solar companies are also experiencing rising gross margins, with number one module manufacturer Trina Solar recently reporting quarterly margins of 20%. Given that all cylinders are firing for both the utility-scale and rooftop solar industries, the solar PV space has never been more exciting. Investors should continue to expect rapid growth in the solar PV arena, especially on the distributed side. While it is easy to place solar and oil in the same market category as they are both forms of energy, it must be remembered that solar has almost nothing to do with oil. Ironically, solar market movements have seen far less correlation with natural gas, which does indeed compete directly with solar. Costs continue to fall on every major solar segment. Source: GTM Research, SEIA Conclusion As long as the irrational solar and oil correlation persists, investors will have large opportunities to profit. With the Guggenheim Solar ETF at a two-year low, the solar sector is set for a turnaround. Despite the fact that the solar industry was still recovering from the industry’s most devastating solar glut two years ago, solar companies during that time had comparable valuations to those of present day solar companies. Investors can clearly profit from the current solar environment given the psychological link between solar and oil. In the inevitable scenario in which solar and oil decouple, solar stocks will likely surge. Disclosure: I am/we are long SCTY. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

401(k) Fund Spotlight: Templeton Global Bond

Summary Lead manager Michael Hasenstab is a contrarian who is not afraid to take concentrated positions in securities where he has a high degree of conviction. Templeton Global Bond has outperformed 99% of its global bond peers over the last 10 years. The fund is wisely avoiding the most dangerous areas out there for global bond investors – sharply higher yields and sovereign debt of Japan, Western Europe, and Southern Europe. Background I select funds on behalf of my investment advisory clients in many different defined contribution plans , namely 401(k)s and 403(b)s. I have looked at a lot of different funds over the years. 401(k) Spotlight is an article series that focuses on one particular fund at a time that is widely offered to Americans in their 401(k) plans. 401(k)s are now the foundational retirement savings vehicle for many Americans. They should be maximized to the fullest extent. A detailed understanding of fund options is a worthwhile endeavor. To get the most of this article is important to understand my approach to investing in 401(k)s. Here are my key principles: 1. I do not buy ‘index hugging’ active funds if a similar index is available. Index hugging funds are those that are overly diversified and their performance never strays far from the index. Index funds almost always have a lower fee so I prefer to just own the index and let the fee savings provide a performance tailwind over time. Lastly, index hugging active funds are generally managed by people who don’t really know how to invest. This may sound harsh, but it is true. They are institutional herd products. 2. When buying actively managed funds, I look for those who are willing to go against the institutional herd and follow their own independent investment approach. I do not mind the higher fee if they have an established track record and it is not necessary that they always beat the index. Sometimes investment positions take a bit longer to pan out than investors would like to see on their quarterly statements. I take comfort in putting money with a manager(s) who is not afraid to stray from the herd. 3. I do not care what Morningstar says. Templeton Global Bond Fund Templeton Global Bond has five different share classes: A (MUTF: TPINX ), Advisor (MUTF: TGBAX ), C (MUTF: TEGBX ), R (MUTF: FGBRX ), and R6 (MUTF: FBNRX ). The class A shares are often found in 401(k)s with the load waived (i.e., no up front sales charge) and a net expense ratio of .90%. This is a reasonable fee given all that this fund offers. With $65 billion of assets it is one of the largest global bond funds out there (in fact, it was the largest in a screen I ran on Fidelity’s website). Templeton Global Bond is relatively free to roam in the bond world wherever it wants. The fund typically invests the majority of its assets in investment grade government bonds from anywhere in the world. It also regularly invests in various currency instruments and derivatives. The fund tends to focus on sovereign debt and not corporate debt. It may invest up to 25% of its assets in below investment grade debt and all of its assets in developing (or emerging) market debt. The fund’s lead manager, Michael Hasenstab, is well known within the investment industry, appearing regularly in publications such as Barrons . He has gained a reputation as a contrarian with a willingness to take concentrated positions on specific bonds that he has a high degree of conviction in. This has generally worked out well, except for a large position in Ukraine government debt that has cost the fund several billion dollars. (About 2% of the fund is currently invested in Ukraine.) In a January 2013 interview with the Financial Times , he warned that it was time to get out of “safe” government debt. His call was right on. The 10-Year Treasury Yield subsequently soared a few months later during the so-called “taper tantrum,” as shown on the following chart (note: bond prices fall when interest rates rise): ^TNX data by YCharts Excellent Performance Track Record Over the last 3-Year, 5-Year, and 10-Year periods (as of December 31, 2014), Templeton Global Bond has crushed both the benchmark and its peer group. The following table shows this: 3-Year Return 5-Year Return 10-Year Return Templeton Global Bond – Class A (without sales charge) 6.3% 5.8% 7.4% Citigroup World Government Bond Index -1.0% 1.7% 3.1% Lipper International Income Funds Average 2.1% 2.9% 4.0% As far as performance goes, there is little to complain about. The fund has consistently shown is value relative to its peers. Portfolio Positioning The makeup of the current portfolio is always the most important thing I look at when evaluating a fund. Currently, given the dynamics of my forecast , my general view on the global bond market is as follows: Completely avoid the sovereign bonds of Japan and Western Europe denominated in Yen and Euro. Completely avoid local currency emerging market bonds (non-U.S. dollar denominated) except for Russia (I expect oil prices to spike soon). U.S. and Pound Sterling government debt with very short maturities is okay. Selective U.S. dollar denominated emerging market bonds are okay, especially debt of corporations with U.S. dollar revenues and local currency expenses. Duration should be short though. Cash positions should be sizeable to take advantage of potential price dislocations created by a lack of market liquidity. (Fund cash positions should also be high to meet shareholder redemptions without having to sell quality bonds at low prices.) How does Templeton Global Bond stack up in light of my outlook? Notably, as of July 31, 2015, the fund has an average duration of only .07 years and an average weighted maturity of only 2.49 years. With a duration of .07, rates could theoretically rise 300% and the fund would only fall by .21%. (Duration measures the exposure of a fund to interest rate fluctuations.) Hasenstab clearly has the fund positioned exceptionally well for a rising rate environment. However, the trade-off here is a low yield. The fund’s 30-day standardized yield is only 2.18%. The distribution yield is higher at 3.04% (calculated by taking the standard monthly distribution of .03 x 12 divided by the current NAV price). Given the near-term danger of a sharp rate rise, I think the low yield is worth accepting. I like the fact that 79% of the fund’s currency exposure is in the U.S. dollar (as of June 30, 2015), which is more than twice that of the comparable index. I especially like the fact that, through derivative exposure, the fund has a 24% net short position in the Japanese Yen and a 36% net short position in the Euro. I am expecting the Yen to outright crash and this fund is well positioned for it. As of June 30, 2015, the fund’s largest sovereign debt holdings are as follows: South Korea – 14% Mexico – 9% Malaysia – 7% Poland – 7% Hungary – 7% Brazil – 5% Singapore – 4% Indonesia – 4% Currently, the fund also holds some smaller positions in the debt of the Philippines, India, Sri Lanka, Serbia, and Slovenia. These 13 countries are pretty much it. Sovereign wise, there is nothing here that is overly concerning to me given that the duration of the fund is so low. I like the fact that the managers have taken highly concentrated positions in the countries they feel have the strongest economic fundamentals. Hasenstab is clearly an investor and not an index hugger. This fund is by-and-large safe from the disaster awaiting holders of Japanese, Western European, and Southern European government debt. In fact, countries with strong fundamentals could see an influx of capital seeking safety as it flees these developed markets. Lastly, the fund is 28% in cash. This gives it ample room to meet client redemptions during a crisis and the flexibility to pounce on higher yielding debt when rates rise. Conclusion I think now is a good time to hold this fund if it is available in an employer-provided 401(k) plan. The hits to the fund from holding Ukraine government debt are behind it. Most notably, the fund is clearing avoiding the most dangerous risks to global bond investors. When it comes to the potential for a fixed income fund to deliver decent returns in the current market environment, Templeton Global Bond is an oasis in the midst of a desert. Investing Disclosure 401(k) Spotlight articles focus on the specific attributes of mutual funds that are widely available to American’s within employer provided defined contribution plans. Fund recommendations are general in nature and not geared towards any specific reader. Fund positioning should be considered as part of a comprehensive asset allocation strategy, based upon the financial situation, investment objectives, and particular needs of the investor. Readers are encouraged to obtain experienced, professional advice. Important Regulatory Disclosures I am a Registered Investment Advisor in the State of Pennsylvania. I screen electronic communications from prospective clients in other states to ensure that I do not communicate directly with any prospect in another state where I have not met the registration requirements or do not have an applicable exemption. Positive comments made regarding this article should not be construed by readers to be an endorsement of my abilities to act as an investment adviser. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.