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BCAT: Deep Discount And Attractive 7.83% Distribution Yield


  • BCAT's discount continues to widen, this time coming in around 16%.
  • The fund is tilted towards fixed income and hasn't escaped the downward pressures with losses for the year.
  • The NAV itself is still holding up relatively well, thanks to its more diversified approach.
  • This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Learn More »

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Written by Nick Ackerman, co-produced by Stanford Chemist. This article was originally published to members of the CEF/ETF Income Laboratory on April 16th, 2022.

BlackRock Capital Allocation Trust (NYSE:BCAT) continues to be avoided

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This article was written by

Nick Ackerman profile picture

Nick Ackerman is a former financial advisor using his experience to provide coverage on closed-end funds and exchange-traded funds. Nick has previously held Series 7 and Series 66 licenses and has been investing personally for over 14 years.

He contributes to the investing group Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT, MA either through stock ownership, options, or other derivatives. 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.

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Comments (75)

BCAT looking really good right now. Don't see a downside to picking this up at current NAV spread and yield.
peacewarrior profile picture
@NWrookie good point if a Blackrock fund with this NAV at a near 20% off doesn't have long term value then nothing does lol...
Nick Ackerman profile picture
@NWrookie I somehow missed this comment. I would agree though. Looking like a great value here! I mean, I said that in this article and it is down 7% since that time. But just looks even more appealing now, for what it's worth.
@Nick Ackerman & @peacewarrior, I’m trying to tell myself not to back the truck all the way up but Rick & team have managed to skate to the puck if you look at how well NAV has held up all things considered. And they are just now getting traction on the PE investments… what am I missing here that is causing such a disconnect between NAV & share price?
I would argue that ROC is not always destructive, in fact in a taxable account this is an advantage way of returning dollars. There are types of investments that inherently return ROC anyways, and this fund has the ability to do lots of things so it is not concerning to me to see ROC appropriated to the distributions as I hold in a taxable position with a long-term view.
Nick Ackerman profile picture
@NWrookie thank you for your thoughts. In this case, it would seem the ROC is destructive. But I agree, it isn't always.
thinking of this for my IRA. Issues doing that? On the return of capital, my first guess is that is unimprtant for an IRA. Is that true? Also, why do you call ROC "destructive"?
It seems to me (in no way a CEF guru, a stock guy) that the ROC could be the issue pushing this down, so I'm zeroing in on that.
Nick Ackerman profile picture
@anotheremptysuit there shouldn't be any issues with an IRA. Return of capital can be good or bad. In one way, it defers taxes as it reduces an investor's cost basis instead of being taxed that year. That being said, BCAT shouldn't have ROC regularly. In this case, it is destructive and their strategy isn't generally going to contribute significantly to any sort of "good ROC" under usual circumstances.
MichelleConnor profile picture
@Nick Ackerman How can ROC be bad when a CEF is trading at nearly 20% discount? I want a full ROC to my IRA account, meaning 100% of the fund's NAV tomorrow, please!
Nick Ackerman profile picture
@MichelleConnor ROC in this case is eroding NAV, because it isn't being earned. That could indicate that in the future, it gets harder to maintain the distribution. If it was being earned, that means you could get NAV and a distribution that is a return. This fund is a term structure, you'll get NAV if you hold long enough.
MichelleConnor profile picture
At the current discount level, I like its sister fund ECAT more, which is trading at a 17.5% discount.
kahunabear profile picture
@MichelleConnor ECAT is much more heavily weighted in stocks.
kahunabear profile picture
@MichelleConnor Do you happen to know the NAV symbol for ECAT? Thanks!
Barton's Global Market Trends profile picture
I held for a few weeks but chickened out and cut loss for the following reasons:
1. The trend since December 2020 has been down. I thought it would rebound on support in early March. It did briefly, but then broke support and has started a new, steeper decline.
2. I don't have confidence in fixed income or tech at the moment. Nasdaq looks likely to fall another 20%, at least.
3. The period of duration of the fund is too short to be confident that management know what they are doing. I held a CEF once for five or six years during which period, the distribution was cut by around 50%. These instruments are black boxes. It's difficult to be confident in them when things get rough. The trend is very important. I would only buy on support in a rising trend and be ready to cut loss at moment's notice.
Nick Ackerman profile picture
@Barton's Global Market Trends thank you for taking the time to share your thoughts!
Barton's Global Market Trends profile picture
@Nick Ackerman You're welcome. Thanks for the thought provoking article.
peacewarrior profile picture
@Nick Ackerman Thought you may want to browse this recent BCAT commentary if you haven't already
I been nibbling on BCAT in 2022 and just set it to DRIP. I figure even destructive ROC (should it happen) will be offset by reinvesting the proceeds. Thanks for the article, been a depressing investing year so far
Nick Ackerman profile picture
@clrodrick I agree, quite a gloomy year. Thank you for sharing your thoughts!
@Nick Ackerman I had quite a few limit buy orders trigger today, so I remain ever hopeful we are closer to end of the pain versus still in early innings! :-))
7865671 profile picture
Nick, thanks for the article. I have one quibble with: "The fund is quite large, and some of that is thanks to the around 18% leverage that the fund utilizes."

The BCAT website says 0% leverage and 17.67% overwritten as of 3/31/22.

I understand you are equating the use of options to say the fund has "leverage", but when making a connection to option leverage, the math is not the same as equating it to percent overwritten. At least, not that I've seen before.


If I'm incorrect on this and this actually isn't an errant useage of leverage, my apologies.
Nick Ackerman profile picture
@7865671 no, that isn't what I meant! Thank you for noticing that. They did have borrowings they were operating with.


It looks like they have reduced it down to zero at this time at the end of March. At the end of December, they had borrowings of $441 million. They are a flexible fund, but I didn't think they would be that drastic to close up their borrowings so quickly.
Nick Ackerman profile picture
@7865671 looking at this again. I think they have an error on their website. If you look at their net assets vs managed assets in the key facts right above the portfolio characteristics, you'll see they are (or perhaps have withdrawn again and) still using $141.5 million in borrowings at the end of April 29th.

Another sign of an error is they show no average market cap or effective duration either.
BeaBaggage profile picture
@Nick Ackerman Exactly! billions under management and they can't get site stats right! they want you in the dark anyway w only minor updates between reports.. that could also be contributing to the discount.
BeaBaggage profile picture
Sold $BCAT a few weeks ago..disappointed in Reider and Koesterich here but two big events happened, FED tightening and the RU/UE war. I did put a little of the BCAT money into sister ESG fund, $ECAT because as of April 1 they had not deployed the funds and are not using leverage yet. Bond duration is very low. 17% disc to NAV
The issue I have w Blackrock is they do not share updates on portfolio changes monthly like many do. Some even let you see what current holdings are on a daily basis. But I will give them a little shot w ECAT as the discount is wide there as well/no leverage/large cash deployment.

I would hope??!! managers will deploy the cash as the markets develop thru the year.. if Blackrock and these guys can't manage the money w their pulse on the market daily, then running a CEF is not for them- let others do it. Watching closely. Bea
Nick Ackerman profile picture
@BeaBaggage thank you for your thoughts! It has certainly been a difficult market.
rickevantodd profile picture
Excellent article. If the NAV is accurate, it is very difficult to pass up a 16% discount.
Barton's Global Market Trends profile picture
@rickevantodd "it is very difficult to pass up a 16% discount."
... unless the underlying portfolio is likely to keep sinking, in which case, the discount might remain, but the capital value can diminish. The 16% discount is no indication of a bottom.
rickevantodd profile picture
@Barton's Global Market Trends Thanks for the response. I agree that the NAV can certainly continue to drop, however, a 16% discount is a nice spread to buy at. Also, I am not capable of market timing.
Nick BCAT is one of my worst performing CEFs YTD but fortunately also one of my smallest positions at 1.25%. After reading your article I'm now tempted to add to this position, thanks.
Eileen Dover profile picture
@du4sloop Underwater big time and waiting for recovery ti unload BCAT. It looks good but has not performed well as long as I have had it. Has been on my sell watch list for a long time.
Xav Welsh profile picture
@Eileen Dover If you continue to hold and it does recover to your cost basis, that moment won’t be the time to sell, it’ll prob be the time to buy into the strength / momentum that is taking it higher again. I feel your pain however, as I too have a number of underwater positions (and have raised cash to deploy as the discounts arise and widen). Good luck to us both!
Nick, here is my 2 cents worth.
The inflation we are going to experience is far removed from politics or the Fed.
The war between Russia and Ukraine are going to lead to some ugly shortages the world over.
Russia and Ukraine control 30% of the world's wheat, which goes mostly to third world countries, but may impact us in the future.
Meanwhile Ukraine is a major supplier of sunflower oil which contributes to much of the cooking oil the world uses.
Also Russia controls 11% of the words oil.
Meanwhile here in the US the west is going through another and much worse drought year. Leading to farmers throughout the West being unable to plant crops they would normally plant. With Lake Powell and Lake Mead at historic lows, how this impacts states from Nevada, Arizona and California is anyone guess.
For years there have been fires out west as climate change has become a reality out here.
So overall, funds like this one with fixed income are for me a no-no.
Nick Ackerman profile picture
@malaparte fair thoughts! Thank you for taking the time to share.
peacewarrior profile picture
@malaparte Russia also controls 2/3 of the Worlds Ammonium Nitrate. However, you lost me a bit with climate change as there is plenty of non-linear dissenting climate cycle data to debate the narrative out there when one digs. But yes Lake Powell and Lake Mead are low.
@peacewarrior Live in Colorado where both this winter and spring have been extremely dry.
Again, if you look at the news you have read of fires in TX, Arizona, NM as well as here in Col. The Marshall fire we had outside Boulder was caused because the weather had been so dry that vegetation normally would be green was all brown and just more timber for the fire to spread.
The west for around 20 yrs has been getting less water while the east has gotten more.
peacewarrior profile picture
Thanks Nick great stuff. Analysis aside, when looking at frightened money on the planet it still seems (at moment) to be looking for safe haven in U.S. markets and in the dollar (again at moment) When/If these government(s) finally capitulate to their poor policies (Ex. Europe pensions truth be told all under water) who do you think will pick up assets for pennies on the dollar to save the day. Big PE entities imho. This may be a bit painful today but still believe in the end BCAT will be a good place to hide in the weeds as it can maneuver on a dime and has viable management.
Nick Ackerman profile picture
@peacewarrior good input! Thank you for reading!
peacewarrior profile picture
@Nick Ackerman Good morning Nick. It is interesting that part of the top 10 holdings includes their own TSTXX liquidity fund in which one of the description(s) is to perform Primary Dealer function for the FED. Have you analyzed this (it is new since 2008 crisis etc) so am trying wrap my head around it and any advantage it may give to BCAT.
Nick Ackerman profile picture
@peacewarrior it is just a money market fund. It actually launched on December 31st, 1986. www.blackrock.com/...

It is simply a cash-like position for them.
adam22164 profile picture
Nick, great minds must think alike, as I opened a position in BCAT last week on one of the market plunge days. This is a premier asset manager (BlackRock) offering a hybrid fund (my favorite type of fund, mixing both Equity & Fixed Income) that is now trading at a huge discount, that equals a BUY in my book. Thanks for the informative article. As a side note, do you see BlackRock cutting the .10 distribution on BIGZ in the near future? I mean the yield initially meant to be 6% at IPO is now incredibly high due to the massive decline in price from the tech wreck.
Nick Ackerman profile picture
@adam22164 thank you for reading and sharing your thoughts! I do believe that they will cut the distribution for BIGZ. They announce every month, so it could be at anytime really.
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