Although Exchange Traded Funds (ETF) have received a much higher degree of publicity of late, one can find that Closed End Funds (CEF) still offer unique investment opportunities that set them apart from ETFs. For example, ETFs are prohibited from investing in private companies. They can only do so at arm’s length, by investing in a publicly traded private equity fund or similar entity. CEFs, on the other hand, are free to do private company investing, provided that they have the wherewithal to do so in a manner that offers appropriate risk mitigation and disclosures to clients. It also helps if the CEF in question offers sufficiently solid overall performance to assuage any concerns about liquidity, capital appreciation, yields, and other topics.
BlackRock’s Technology Foray
As Co-Founder, Chairman, and CEO of BlackRock, Laurence Fink has built a financial juggernaut with over $15 trillion AUM.
The BlackRock Science and Technology Term Trust (NYSE: BSTZ) is a closed end fund tasked with buying share stakes in publicly traded US and non-US cutting edge technology companies with roughly 80% of its assets under management. Given that BlackRock manages in excess of $15 trillion, it certainly qualifies as having the prerequisite deep pockets for any private companies it might wish to take a stake in under the aforementioned guidelines.
While the Nasdaq-100 or other technology heavy indexes can reference numerous ETFs predicated on their daily price as an industry benchmark, BSTZ is open to obtaining stocks at any market cap if the underlying technology is deemed to have substantial growth potential.
Additionally, BSTZ deploys a covered call strategy not unlike that of JP Morgan’s popular JP Morgan Equity Premium Income ETF (NYSEARCA: JEPI) as a source for monthly dividend income. A quick reference of BSTZ features the following, based on market price at the time of this writing:
| Yield | 11.87% | Net Assets | $1.671 billion |
| Market Price | 22.05 | Inception Date | 6-25-2019 |
| NAV | 24.32 | Expense Ratio | 1.48% |
| Premium NAV discount | -9.33% | 1-year return | 18.82% |
| Average Daily Volume | 234,975 shares | 3-year return | 14.03% |
| Number of Securities | 82 | 5-year return | 8.17% |
The Private Corporation Advantage
Unlike other funds, BSTZ has the deep pockets to make a private company like AI firm Databricks its largest holding, with 13.88% equating to over $231 million.
Thanks to BlackRock’s extensive analytics team, it is able to take meaningfully large stakes in a mix of private and public companies that give it an advantage for its capital appreciation upside. Its vast war chest mitigates liquidity concerns that allows BSTZ portfolio manager Tony Kim to exercise patience as some of the companies work their way through the IPO process and exponential profits.
A recent portfolio peek of BSTZ includes the following top 10 largest holdings:
- Project Debussy (Databricks): 13.88%
- Nvidia: 10.05%
- Project Picasso (PsiQuantum): 6.42%
- Astera Labs: 2.30%
- Klarna Group PLC: 2.25% (pre-IPO)
- Project Bond (undefined private company): 2.23%
- Spotify Technology: 2.18%
- Project Gaugamela (unidentified venture stage company): 2.15%
- Snowflake, Inc.: 2.09%
- Credo Technology Group: 2.07%
As one can easily see, BSTZ’s Tony Kim has few qualms about devoting sizable investments into companies that are in very early stages of development. Project Gaugamela, for example, is a venture stage company to which 2.15% of the portfolio has been allocated. However, in real dollars and cents, that equates to $35.926 million, a hefty roll of the dice gamble on a company that may never have a commercially viable product or service. This would be a career suicide move for many other publicly traded entity portfolio managers, but not for BlackRock.
Of course, BSTZ also has stakes in firmly established private companies as well, such as China’s Bytedance, which is the parent of the globally ubiquitous social media site, TikTok.
With a yield of over 11% (bordering on 12%), a consistent track history of price appreciation, and exposure to cutting edge technologies with potential for IPO windfalls, BSTZ is certainly a worthwhile consideration addition to any portfolio. Add its 9% discount to NAV for additional risk mitigation, and it’s a package difficult to ignore. Its only caveat is a built-in expiration date in 2031, not unlike the replicants from the sci-fi classic film, Blade Runner. However, that expiration is subject to extension, with an option to convert to perpetual. With this recipe for gains and a marked advantage over rival offerings from its private company holdings, BSTZ should have a long future ahead in delivering wealth building gains to its shareholders.
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