Misconceptions about CEFs: Many investors misunderstand closed-end funds (CEFs), particularly regarding their fees and yields, which can lead them to miss out on significant dividends compared to ETFs like the SPDR S&P 500 ETF Trust (SPY).
CEF Fees Explained: While CEFs have higher average management fees (around 2.9%), these fees are taken from the fund's portfolio before dividends are distributed, meaning investors receive the full yield reported, which can be substantially higher than that of index funds.
Performance Comparison: CEFs like the BlackRock Science and Technology Trust (BST) and Columbia Seligman Premium Technology Growth Fund (STK) have outperformed the S&P 500 index, even after accounting for their fees, highlighting their potential for higher returns.
Investment Strategy: Investors can benefit from a "CEF rotation" strategy, buying CEFs when they are undervalued and selling when they are overvalued, while also enjoying high yields and diversification across various asset classes.
BlackRock Science and Technology Trust (the Trust) is a diversified, closed-end management investment company. The Trust's investment objective is to provide income and total return through a combination of current income, current gains and long-term capital appreciation. The Trust seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its total assets in equity securities of United States (U.S.) and non-U.S. science and technology companies in any market capitalization range. The Trust seeks to pursue this goal primarily by investing in a portfolio of equity securities and also by employing a strategy of writing (selling) call and put options. The Trust invests in various industries, including software, semiconductors and semiconductor equipment, information technology (IT) services, financial services, broadline retail, entertainment, and diversified consumer services. The Trust's investment manager is BlackRock Advisors, LLC.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
