BSTZ: Exploding Higher And Still At A Deep Discount

Summary

• We have recently bought this fund in our more aggressive model portfolio at the CEF/ETF Income Laboratory.
• The fund is at an extreme discount; this is as the fund's NAV has been rocketing higher.
• As a CEF, it is a bit of a lower yielding fund than average - however, this does leave room for potential year-end specials or increased distributions.
• Looking for a portfolio of ideas like this one? Members of CEF/ETF Income Laboratory get exclusive access to our model portfolio. Get started today »

Written by Nick Ackerman, co-produced by Stanford Chemist

Recently, we took a position in BlackRock Science & Technology Trust II (NYSE:BSTZ). This was in our Tactical Income-100 Portfolio. This portfolio is designed to be more aggressive and take advantage of special situations. In this case, the fund is a term dated fund with a huge discount. This discount came thanks to the stellar performance of the fund's underlying NAV. This is exactly what we like to see - a discount widening via NAV growth and a lagging market price. The technology space has certainly been a hot place to invest throughout the pandemic.

BSTZ is a relatively newer fund launched only last year on June 26th. The fund has a term structure that should see the fund liquidated around June 26th, 2031. We certainly have quite a bit of a wait for that to come. However, the fund's 11%+ discount should see us generate additional returns by about 1% annually, all else being equal. An investor does need to take into account the fact that we could see some volatile movements from now until then, though. The tech sector is certainly known to be a volatile place to invest. Traditionally, tech is also quite a cyclical place to invest. COVID-19 turned all that around this year as the health crisis is generating an even stronger demand for tech-related companies.

The fund has an investment objective to "provide total return and income through a combination of current income, current gains and long-term capital appreciation." They intend to achieve this through "investing 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 for the development, advancement and use of science and/or technology."

Analyst’s Disclosure:I am/we are long BSTZ, BST. 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.

This article was originally published to members of the CEF/ETF Income Laboratory on July 15th, 2020.