BSTZ: 11% Yield CEF with Private Tech Edge

While Exchange Traded Funds (ETFs) have dominated recent investment headlines, Closed-End Funds (CEFs) like BlackRock’s BSTZ offer unique structural advantages that set them apart. Unlike ETFs, which are prohibited from direct private company investments, CEFs can allocate capital to pre-IPO companies, provided they maintain appropriate risk mitigation and disclosure protocols. This capability allows BSTZ to access investment opportunities unavailable to most retail investors and traditional index-tracking funds.

The fund’s ability to invest directly in private companies gives it an edge in capturing value before companies go public. While ETFs can only gain exposure to private markets indirectly through publicly traded private equity funds, BSTZ can take meaningful direct stakes in promising technology companies. This structural advantage, combined with BlackRock’s $15 trillion in assets under management, provides BSTZ with both the mandate and the resources to pursue these exclusive opportunities.

Launched on June 25, 2019, the BlackRock Science and Technology Term Trust (NYSE: BSTZ) represents a strategic foray into cutting-edge technology investing. With $1.67 billion in net assets, the fund allocates approximately 80% of its portfolio to publicly traded and private technology companies across US and international markets. Under the leadership of BlackRock Chairman and CEO Laurence Fink, the fund benefits from the firm’s massive analytical resources and deep pockets.

BSTZ’s performance metrics demonstrate its compelling value proposition. The fund currently yields 11.87% through its covered call strategy, similar to JP Morgan’s popular JEPI ETF. It trades at a 9.33% discount to its net asset value of $24.32, providing additional risk mitigation. Historical returns are robust with 18.82% over one year, 14.03% over three years, and 8.17% over five years, despite the fund’s relatively recent inception.

The fund’s expense ratio of 1.48% reflects the active management required for its complex strategy, which includes both public equity investing and private company due diligence. With average daily volume of nearly 235,000 shares, BSTZ maintains sufficient liquidity for most investors despite its closed-end structure.

BSTZ’s most distinctive feature is its substantial allocation to private technology companies, a capability that sets it apart from conventional technology ETFs. Portfolio manager Tony Kim has demonstrated willingness to make significant bets on early-stage companies, with Databricks representing the fund’s largest holding at 13.88% of the portfolio, equivalent to over $231 million. This position alone illustrates BlackRock’s confidence in its analytical capabilities and risk management framework.

The fund’s top holdings reveal a carefully constructed blend of established public companies and promising private ventures. Alongside Databricks, the portfolio includes Nvidia (10.05%), PsiQuantum (6.42% under the code name Project Picasso), and pre-IPO positions in companies like Klarna Group (2.25%). The fund also holds stakes in publicly traded technology leaders including Spotify (2.18%), Snowflake (2.09%), and Credo Technology Group (2.07%).

Perhaps most notably, BSTZ has allocated 2.15% of its portfolio ($35.9 million) to Project Gaugamela, an unidentified venture-stage company. This level of commitment to early-stage ventures would be unprecedented for most publicly traded investment vehicles, but BlackRock’s scale and resources enable such strategic bets. The fund also maintains exposure to established private giants like China’s Bytedance, parent company of TikTok, demonstrating the breadth of its private market access.

While BSTZ offers compelling advantages, investors must consider several unique structural aspects. The fund has a built-in expiration date in 2031, similar to term trusts, though this is subject to extension and includes an option to convert to a perpetual structure. This term structure provides a natural liquidity event but also introduces timeline considerations for long-term investors.

The fund’s substantial allocations to private companies introduce liquidity risks that differ from purely public market investments. However, BlackRock’s massive $15 trillion war chest provides significant liquidity backstops, allowing portfolio manager Tony Kim to exercise patience as portfolio companies progress toward IPOs or other liquidity events. The current 9.33% discount to NAV provides additional margin of safety against valuation uncertainties in the private holdings.

For investors seeking technology exposure with income generation and access to pre-IPO opportunities, BSTZ represents a unique vehicle that combines institutional-grade private market access with retail investor accessibility. Its combination of high yield, NAV discount, and exclusive private company investments creates a compelling package for sophisticated investors looking beyond conventional technology ETFs.