A Nice Innovation Themed Fund
But Investors Need To Know About The Revamped Distribution Plan
Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
Roughly two years ago, I did an analysis of the BlackRock Innovation & Growth Term Trust (BIGZ). It was only about 7 months old when I reviewed it, so while we could draw some conclusions about what the fund looks like or how it should perform, we really didn’t have any data or a track record to work with. Essentially, early shareholders were flying blind and hoping to get some luck by investing in the whole innovation theme at the right time. Flash forward to today and BIGZ is 2½ years old with roughly $2 billion in assets.
In just that short time, it’s been through the post-COVID recovery, the steepest interest rate hiking cycle in history and the current will we/won’t we question to whether there will be a soft landing or recession. In other words, we’ve got a lot more information to work with. While the ups and downs of the market over the past few years haven’t necessarily been enjoyable, they have been useful in developing a clearer view of what the future might look like. Plus, with a brand new distribution policy to consider, there’s a lot to review once again.
Fund Background
BIGZ’s investment objective is to provide total return and income through a combination of current income, current gains and long-term capital appreciation. It will invest primarily in equity securities issued by mid- and small-cap companies that the managers believe have above-average earnings growth potential. As the name suggests, the focus will be on companies that are “innovative.” These are companies that have introduced, or are seeking to introduce, a new product or service that potentially changes the marketplace. BIGZ also utilizes an option writing strategy in an effort to generate income from options premiums and enhance risk-adjusted returns.
While BIGZ can be categorized as a covered call fund, it only has an 12% option overlay currently, written on single stocks held within the portfolio. That’s enough to give it an income boost, but not really enough to make a huge difference. The fund states an objective of targeting mid- and small-cap stocks, but, by BlackRock’s own admission, 44% of fund assets are invested in large-cap names. In its current state, BIGZ is more of an all-cap portfolio than anything. It’s also worth noting that the fund has an annualized turnover rate of around 45%. That’s enough to conclude that the portfolio is constantly evolving, but not so quickly that it becomes a trading vehicle more than an investing vehicle. The more than 20% position in preferred securities helps to generate the fund’s high yield. An overall expense ratio of 1.36% is decidedly average for this type of strategy.
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.