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.
Around a year ago at this time, I profiled the BlackRock Science & Technology Trust Fund (BST). At the time, conditions were far different than they are today. The S&P 500 has just corrected by more than 20%. The Nasdaq 100 was down by more than 30% at multiple points. Inflation had peaked at 9% roughly six months earlier, but the Fed was in catch-up mode and still had 100 basis points of rate hikes ahead of them.
Over the one year since, the magnificent 7 trade has dominated the equity markets and mega-cap tech has driven the vast majority of S&P 500 gains. Even though gains have spread out modestly, U.S. stocks have yet to correct in any meaningful way. With tech stocks at the tippy top of their historical valuation range and the possibility of an economic slowdown, credit event and/or commercial real estate bust still looming, the outlook for tech is murky. Can they continue to squeeze out gains? Are valuations finally ready to contract? Will high interest rates start to let some air out of the bubble? Is BST the way to play it if you still believe in tech’s potential?
Fund Background
BST’s investment objective is to provide income & total return through a combination of current income, current gains and long-term capital appreciation. Under normal market conditions, it will invest mostly in the equity securities of U.S. and non-U.S. science and technology companies in any market capitalization range. Those companies targeted will be selected for their rapid and sustainable growth potential from the development, advancement and use of science & technology, and/or potential to generate current income from advantageous dividend yields. The fund will also employ a strategy of writing covered call options on a portion of the stocks in its portfolio.
NCZ also utilizes leverage in order to enhance yield and total return potential.
While the fund’s all-cap, all-region mandate sounds good on the surface, it really comes down to whether or not this is just another magnificent 7 fund masquerading as a diversified tech fund. The answer is “sort of yes”. It’s got five of the seven stocks in the top 10 holdings, but it actually does a better job than a lot of funds in diversifying into other areas, particularly small-caps. The covered call strategy has been successful in delivering a high and sustainable distribution, but it’s obviously capped some share price appreciation potential in this market. There’s enough balance in this portfolio to suggest that it’s more than a pseudo-mega-cap tech fund, but it doesn’t venture too far from what’s been delivering in this market.
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