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The BlackRock Science and Technology Trust (NYSE:BST) is a closed end fund which has performed well over its history. With over $1 billion under management, BST has outperformed the market since its debut in 2014. Recent market turmoil has spoiled the fun, generating steep losses as shareholders continue to flee emerging risks. Today, we dive back into the fund and focus on one unique area of BST’s portfolio.
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Overview and Recap
BST is a closed end fund which utilizes a portfolio of common stock and derivatives to drive total return. At a high level, the strategy is not unique and BlackRock (BLK) offers other successful strategies which look similar. The fund has performed well since inception, but recent market action has dramatically impacted near term performance.
BST offers an interesting value proposition to income investors. The fund invests in the most successful science and technology companies, many of which do not distribute impressive dividends. BST employs derivatives and harvests capital gains to pay shareholders a consistent, strong dividend. Based on current share prices, BST offers a 6.88% yield paid monthly in the form of a $0.25 dividend. The fund has delivered on its mission thus far, as income and share prices continue to grow.
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As near-term risks such as geopolitical turmoil and rising interest rates continue to ravage the market, BST has felt the pain. NAV and share price have dropped accordingly as investors’ optimism tempers. Currently sitting approximately 25% off of all time highs, shareholders have been left wondering where the incredible, consistent performance of the past five years has gone. While the sails no longer benefit from the strong tailwinds of the pandemic and low borrowing costs, the course of the ship remains strong.
As we mentioned, BST invests in some of the largest and most successful companies on the planet. The portfolio is dominated by classic FAANG companies. These companies account for a significant portion of the portfolio with Apple (AAPL) and Microsoft (MSFT) representing over 10% of the portfolio on a combined basis.
While tech continuously runs in and out of favor as optimism peaks and withdraws, the reality is that large cap tech are some of the strongest companies on the planet. Their fortress balance sheets are well capitalized and their global reach and market dominance is nearly unparalleled in any other industry. All in all, this portion of the portfolio offers stability, despite volatility. Investors with ample time horizon and stomach for volatility should continue to …….