BSTZ - BST And BSTZ: 10% To 14% Yields Discount Up To 18%

Summary

• BST yields 10.32% and BSTZ yields 14.54% - both pay monthly.
• BST has a 0.37% discount to NAV, and BSTZ has an 18% discount to NAV.
• We compare both funds' holdings, expenses, and performance.

If you're looking for a long term contrarian income investment, you may want to consider BlackRock Science and Technology Trust II ( BSTZ ) and/or its sister fund, BlackRock Science And Technology Trust ( BST ). These are both closed-end funds.

Profiles:

BST is a perpetual CEF which began operations in October 2014 with the investment objectives of providing income and total return through a combination of current income, current gains and long-term capital appreciation.

Under normal market conditions, BST 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 cap range. BST's management sells covered call options on a portion of the common stocks in its portfolio. (BST site)

BSTZ is a limited-term CEF. BSTZ began operations in June 2019 with the investment objectives of providing total return and income through a combination of current income, current gains and long-term capital appreciation.

BSTZ normally invests 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 cap range, selected for their rapid and sustainable growth potential from the development, advancement and use of science and/or technology. BSTZ's management also sells covered calls on part of its portfolio. (BSTZ site)

BSTZ is the newer of the two funds - it IPOd in 2019. It has a larger asset base, of $1.27B, vs. $982M for BST. BSTZ's trading volume is nearly 3X that of BST's. Both funds pay monthly distributions, and have a similar quantity of holdings. BSTZ's expense ratio is higher, at 1.31%, vs. 1.00% for BTZ:

Dividends:

At its 12/22/22 $29.08 closing price, BST yields 10.32%. Management raised the monthly distribution in October 2021 from $0.226 to $.25, and also paid a $1.5584 special distribution in December 2021.

At its 12/22/22 closing price of $15.85, BSTZ has a much higher yield of 14.54%. Management raised the monthly distribution in October 2021 from $.1710 to $.1920. They also paid a special distribution of $1.0797 in December 2021.

Both funds should go ex-dividend on ~1/13/2023, with a ~1/31/2023 pay date.

BST has a strong five-year dividend growth rate of 26.38%, including special dividends. Neither fund has declared a special distribution in December 2022.

Holdings:

These two funds have a marked difference in their market cap allocations, with BST favoring large caps, at a ~65% weighting, vs. just ~37% for BSTZ. The cap weightings are much more even for BSTZ, which also holds 25.6% in mid caps, vs. just 7% for BST; and 37% in small caps, vs. 28% for BST.

BST has a much larger 82% exposure to North America, vs. just 59% for BSTZ, whereas BSTZ has more exposure to Emerging Markets, Europe, and Asia Pacific:

As you'd expect for tech-based funds, both funds' heaviest sector weightings are in Software & Services and Semiconductors.

BST reduced its Media & Entertainment holdings recently, dropping them from 7.32%, as of 8/30/22, to 4.52%, as of 11/30/22. Management increased its Tech Hardware exposure from 8.48% to 10.48% during this period.

BSTZ also reduced its exposure to Media & Entertainment, dropping them from 8.98% to 4.98%, while increasing the fund's Software & Services exposure from 40.91% to 43.44%.

BST's top 10 holdings include many big cap familiar tech names, including Apple (AAPL) and Microsoft (MSFT), in addition to Project Debussy and Project Picasso, forming ~31% of its portfolio.

BSTZ's top 10 holdings include Tesla ( TSLA ) and automation software giant Synopsys ( SNPS ), but heavily favors lesser-known tech names, forming ~30% of its portfolio.

Performance:

Both CEFs have lagged the Nasdaq 100 over the past month, quarter, year, and so far in 2022. However, BST has slightly outperformed the Nasdaq over the past year on a total return basis.

BST lagged the Morningstar Equity CEF sector in 2021, but outperformed it in 2017 - 2020, and in 2015:

In BSTZ's much shorter history, it underperformed in 2021 and outperformed in 2020:

Valuations:

CEF's report their NAV/share for the previous day, so the NAV discount or premium has a one-day lag. Buying CEFs at a deeper than historical discount can be a useful strategy, due to mean reversion.

BST had a modest 0.37% discount as of 12/21/22, which was less than its 1-year average, but cheaper than it thee- and five-year average premiums to NAV.

BSTZ had a much deeper discounted Price to NAV of -18.25%, cheaper than its three-year average of -8.56%.

Parting Thoughts:

Is tech going away anytime soon?

No, but with the Fed still set on a rate-rising course in the near-to-mid-term future, Tech/Science stocks will probably continue to trail the market. Of course, at some point, the Fed will stop raising rates, which the overall market will celebrate. But will investors return to supporting tech funds and stocks at that point? That could happen if we get a "soft landing" recession perhaps.

On the other hand, the Fed may even have to reverse course and lower rates if the US falls into a deep recession. A return to lower rates would support Tech growth investments, but a deep recession may suppress the overall market.

If you have a long-term horizon, BST and BSTZ could be positive long-term income investments at their current levels - just don't bet the ranch.

All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.

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