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BTZ: Strong Diversified Bond CEF, 6.5% Distribution Yield, But Lower Returns And Alpha Vs. Peers


  • BTZ's diversified holdings, strong 6.5% distribution yield, and market-beating returns make the fund a buy.
  • BlackRock has two other similar funds, which similar, but stronger, characteristics.
  • An overview of BTZ, and comparison between these funds, follows.
  • This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Learn More »
BlackRock financial services logo outside of office in San Francisco
David Tran/iStock Editorial via Getty Images

BlackRock has three strong multi-sector bond CEFs, all of which offer investors diversified holdings, strong distribution yields, and market-beating returns.

The Multi-Sector Income Trust (BIT) is the riskiest, focusing on high-yield corporate bonds, with some smaller investments in investment-grade bonds. BIT has

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This article was written by

Juan de la Hoz profile picture

Juan de la Hoz has worked as a fixed income trader, financial analyst, operations analyst, and as an economics professor. He has experience analyzing, trading, and negotiating fixed-income securities, including bonds, money markets, and interbank trade financing, across markets and currencies. He focuses on dividend, bond, and income funds, with a strong focus on ETFs.

Juan is a contributor to the investing group CEF/ETF Income Laboratory holdings are also monthly-payers, for faster compounding and steady income streams. Other features include 24/7 chat, and trade alerts.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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 20th, 2021.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

sacking profile picture
Did something hit on 10/26 that sent this through the roof? I've been in this for months, and it's great. Nice steady dividend and limited volatility. Then today it's up 2% in the middle of the day. Thanks for your insights.
Juan de la Hoz profile picture
@sacking, had a quick look and nothing really happened yesterday, the fund's price / premium just spiked. Relatively common for CEFs, probably just a big buy order.
AE_Savant profile picture
Juan - Really impressed with your work where you disaggregate alpha and beta! It's a very useful exercise that provides better insight into the dynamic of these funds.
"BTZ has moderate risk, but the lowest returns, due to lack of alpha."

I mentioned this in one of your other recent articles, but if you focus on the *risk adjusted return* (as measured by the Sortino ratio), BTZ actually beats BIT. The link below tracks the returns for the last five years for BIT, BTZ and BHK, but the story is essentially the same for three and ten year periods.

I look at the Sortino ratio because it takes downside volatility into account in the return calculation. This is an important consideration, especially for fixed income funds where you generally don't want excess volatility.

Now, this is a great piece of investigative work- coupled with very clear and straightforward financial journalism.

sc21 profile picture
If I might turn the subject for a minute. At different times you have written pieces about Swan and NTXS. Both funds seem to cover much the same ground. At this point in time, if you were to pick one over the other, which would you give priority too? One can not eat all the apples so interested in how you rank the two. Would value your input. TIA S.C,
Juan de la Hoz profile picture
Hi @sc21.

Both use similar strategies, SWAN is safer but has lower returns, NTSX is more aggresive, more volatile, but has higher returns. I would pick SWAN because the fund is structured in such a way that it wouldn't perform too badly if both equities and treasuries are down at the same time.
sc21 profile picture
@Juan de la Hoz
Interesting. Much appreciate your inputs. SC
sc21 profile picture
@Juan de la Hoz
PS Left Banker did a piece on NTSX today . If you did not see it, you might want to have a look. best and thanks again your inputs. sc
Seatonmanagement profile picture
"I see very few reasons to invest in a fund with an average level of risk but below-average returns, and so would not be investing in BTZ at the present time.

BHK is significantly safer than BTZ, and offers comparable returns. Seems like the better choice for most investors.

BIT offers greater yields and returns when compared to BTZ, but risks are higher too. Seems like the better choice for more risk-seeking investors.

Investing 50% in BHK and 50% in BIT approximates a full investment in BTZ, and is better than the former in most relevant metrics."

There it is. Thank you.
Juan de la Hoz profile picture
Thanks for commenting Seaton, glad you liked the article.
All the funds discussed are expensive. BHK has high duration. If rates go up eventually the losses will magnify due to discount widening and NAV loss.
Juan de la Hoz profile picture
Thanks for commenting @sanya Robert!

The funds are somewhat expensive yes, but part of that is the leverage, and all have very strong returns AFTER expenses.

BHK does have high duration, of about 9.4. The fund should experience heavy losses if rates rise, but a good management team can minimize these. As an example, the 10 year is up 0.65 these past twelve months. BHK's NAV should have gone down by about 6.1% (9.4*0.65), but it is only down by about 1.2%. BHK's NAV fared much better than one would think as rates rose, partly because of diversification (high yield bonds did better), and partly due to alpha (BHK's managers sold their entire treasury holdings before rates rose). NAV losses of 1.2% are tiny, and much smaller than the fund's 5.4% yield, and so the fund still posted strong returns during the years.

Point being, there are definitely situations in which BHK should underperform, but the fund's management has been quite good at preparing / avoiding these in the past, and I'm quite confident that will continue to be the case.
@Juan de la Hoz
Thanks for the reply. What I meant by expensive is the fund is trading at slight premium. The effective yield is reduced. Discount widening dynamic is a real risk during sell-off.
Hello Juan.You didn’t mention the inflation risk - long duration.
Juan de la Hoz profile picture
Thanks for commenting @yorshef!

Duration for the funds is:

BHK: 9.38
BTZ: 6.42
BIT: -0.78

Bear in mind duration is partly an active decision. BIT has negative duration because its managers thought rates would rise (they didn't!).
bryan555 profile picture
Really outstanding work, Juan. Imagine if all the analysis at SA achieved this level of quality.

You understand that Seeking Alpha is actually about... seeking alpha. I'm very grateful for your deep dive into these 3 funds.
Juan de la Hoz profile picture
Thanks a lot Bryan! Always nice to hear people found what I wrote useful / high-quality, especially from long-time readers.
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