Where A Big Distribution Increase Actually Looks Like A Bad Thing

Nuance Is Everything

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.

In case you haven’t been following the markets over the past week or so, tech stocks are in the midst of a bit of a reversal. “A bit” actually may be an understatement. Relative to the S&P 500, this could be the sharpest and steepest stretch of underperformance for the tech sector maybe in the 2020s so far. That’s put a lot of tech stocks and tech funds on notice, especially those that investors have been overweighting for the better part of the past two years. The closed-end fund universe is no different. There are only a couple of tech-focused CEFs available, but now’s a good time to revisit them, see what the damage is and how well (or poorly) they’re positioned.

The fund I want to look at is the BlackRock Science & Technology Term Trust (BSTZ). Not only does it invest in tech companies around the world, which can also increase risk, it invests heavily in private equity. That could make this fund an especially risky venture since these asset classes tend not to perform particularly well during economic downturns. If we are in the early innings of a slowdown, it’s important to understand just how much these types of funds could be impacted.

Fund Background

BSTZ’s investment objectives are to provide total return and income through a combination of current income, current gains and long-term capital appreciation. Under normal market conditions, it will invest at least 80% of its total assets in equity securities issued by U.S. and non-U.S. science and technology companies in any market capitalization range, selected for their rapid and sustainable growth potential from the development, advancement and use of science and/or technology. It will also utilize an option writing strategy in an effort to generate current gains from options premiums and to enhance risk-adjusted returns.