BlackRock's Income ETF For Science Tech

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It’s been one year since we first added the BlackRock Science & Technology Trust II (BSTZ) to our portfolio — and this month we’re bringing back this smartly run closed-end fund for a second tour.

It’s not something we usually do, but when a fund is this underrated — BSTZ trades at a ridiculous 12% discount as I write this — and offers a rapidly growing dividend with a yield of 6%, it’s an opportunity that’s just too good to pass up. 

We sold BSTZ just two months into our holding period, in May 2020, after riding it to a 22% total return as investors (belatedly) realized tech wasn’t going to get crushed by the pandemic.

We’ve got a similar disconnect in front of us today, because now, like then, investors think tech will be left behind — this time on the gains to be had in the recovery. And now, like then, we’re going to grab a position before the crowd comes to its senses.

BSTZ has another trick up its sleeve that makes it even more of a standout; It’s when you turn to the fund’s portfolio that the story gets really compelling.

CEF

Let’s start with No. 10 holding, Tokyo-listed Kakao Corp., which isn’t familiar to a lot of Americans but is a social-media mainstay in tech-savvy South Korea. No. 9 holding Twilio (TWLO) provides cloud-communications infrastructure that’s been in high demand since long before the pandemic. And of course, we all know Tesla (TSLA), Snap (SNAP) and Square (SQ). 

But there are also some names on this list that sound pretty obscure, like C3 AI Inc. (AI), Project Kafka and Project Debussy.  I’ve had some discussions with BlackRock about these, and I can report that a quarter of BSTZ’s portfolio is dedicated to private-equity investments, some of which are kept undisclosed.

These types of investments can explode in value: take BSTZ’s biggest holding, C3 AI. BSTZ bought in late 2019, when C3 was private and valued at $3.3 billion. Its market cap was recently at $7.5 billion, meaning a 130% total return on this investment alone in less than two years.

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