The BlackRock Science and Technology Trust II (BSTZ) — a recommendation in my portfolio — trades at a 16.5% discount to net asset value (NAV, or the value of its portfolio), observes Michael Foster, closed-end fund expert and editor of CEF Insider.
That discount exists because BSTZ is the youngest tech CEF out there, having been launched in late 2019. With little history behind it, paranoid investors have been quick to oversell it this year. It also amounts to a pretty sweet "double deal" for us, as we get the fund's discount in addition to the deal we're getting on its overly washed-out portfolio.
Thing is, BSTZ's discount doesn't square with its holdings of strong companies like semiconductor maker Marvell Technology (MRVL) and security-software provider Synopsys (SNPS). BSTZ also holds a number of private-equity firms that are providing value that will be realized when they go through their IPOs.
All of this is on sale, and investors who add BSTZ now, and who can handle some short-term volatility, will likely see strong gains beyond the CEF's 13.4% dividend, which is paid monthly.
BSTZ's private investments are overlooked — for now. The fund's private-equity buys really are an underrated part of the fund's approach. Take its decision to invest in Credo Technology Group (CRDO) in 2020, long before the company's IPO in early 2022.
Credo's technology helps increase bandwidth on wired IT networks. That's played out well, as BSTZ's early investment resulted in some nice returns when Credo went public this year. And Credo remains one of the few tech companies out there with a positive year-to-date return, up 26%.
BSTZ's management can spot opportunities like this and get ahead of tech trends due to its access to the unparalleled research resources of BlackRock, the world's largest investment firm. While BSTZ has mainly fallen this year with the publicly traded shares it holds, its private-equity strategy has been working to sustain the fund's NAV.
This, in turn, has kept it producing profits to turn into high dividends for shareholders. These investments also point to a strong recovery when the market returns to a more favorable condition for funds like BSTZ. In the meantime, we'll continue to collect its healthy dividend.