Time To Sell The BlackRock Capital Allocation Term Trust Despite Its 22.75% Yield

2025-05-20 12:31:56 ET

Summary

• BCAT's discount to NAV has dramatically narrowed, removing a key catalyst for further upside and making the fund less attractive for discount-driven investors.
• The sustainability of BCAT's extremely high 22.75% distribution is questionable, increasing the risk of a future distribution cut.
• A growing allocation to private (Level 3) investments introduces valuation and liquidity risks, which could pressure the discount if distributions outpace returns.
• With activist catalysts played out and Saba Capital exiting, I rate BCAT a sell, preferring to rotate into funds with larger, unwarranted discounts.

The BlackRock Capital Allocation Term Trust ( BCAT ) is a huge mixed fund with ~$1.6 billion in assets under management while employing a modest ~5% effective leverage. Right now its discount to net asset value has narrowed to 3.31% after significant activist pressure initiated by Saba Capital Management a few years ago. Notwithstanding the extremely high distribution of 22.75% I think it is about time to move on. That doesn’t mean it is a bad fund or it couldn’t be a hold for other investors. My main reason is that I like to switch between funds relatively quickly if they become more or less attractive....

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