In his Forbes/Fridson Income Securities Investor newsletter, Marty Fridson focuses on building wealth with bonds, convertibles and preferreds. Here's a look at 2 funds that offer yield and diversification within the tech sector.
AllianzGI Artificial Intelligence & Technologies Opportunity Fund (AIO) — with a yield of 4.9% — focuses on leading ideas in artificial intelligence (AI) and other new technologies through the allocation of its investments to various parts of a company’s capital structure.
AIO is a relatively new closed-end fund with a 10/29/19 inception date. The fund seeks to provide total return through a combination of current income, current gains, and long-term capital appreciation. AIO typically employs little if any leverage.
This fund offers investors the opportunity to gain exposure to public and private investments tied to the AI space, while achieving growth and a reasonable cash distribution. As of 09/30/20, the portfolio included Convertible Securities (52.6%), Common Equities (43.7%), and Cash & Equivalents (3.7%).
The fund’s top five holdings as of 09/30/20, consisted of Amazon (1.94%), Microsoft (1.91%), UnitedHealth Group (1.75%), Deere (1.73%), and ON Semiconductor (Convertible) (1.62%).
AIO’s cumulative performance has been solid, with a 14.06% market price total return since its inception. In 2020, cash distributions have consisted almost entirely of capital gains. This investment is most suitable for low- to medium-risk tax-deferred portfolios. Buy up to $30.00 for an annualized 4.32% yield.
BlackRock Science and Technology Trust (BST) has an investment objective to provide income and total return through a combination of current income, current gains, and long-term capital appreciation.
The trust typically invests at least 80% of its assets in equity securities issued by U.S. and non-U.S. science and technology companies. Additionally, the trust has a strategy of writing (selling) covered call options on a portion of the portfolio’s equities to enhance return.
The trust reported strong performance for full-year 2019 and YTD 2020 through 09/30/20. BST posted market price total returns of +35.24% and +35.14%, for the respective periods, fueled by strength in Technology, Semiconductors, Media & Entertainment, and Telecom.
The portfolio’s list of top sectors is typically dominated by Software & Services, Media & Entertainment, and Semiconductors & Equipment. Top holdings as of 11/30/20 included Apple (3.91%), Microsoft (3.51%), Amazon (2.92%), Square (2.56%), and Alibaba Group (2.47%).
Performance in 2021 is likely to be solid, although it may prove difficult to match the 2019 and 2020 results.
We initially recommended BST in March 2016 as a suitable investment for medium- to high-risk portfolios, with a $17 fair-value price. With this latest review, we are recommending BST as a Buy for all risk portfolios, noting the trust’s performance and growth potential. We are also raising BST’s fair-value price to $60.