BST: Tech Plus Dividend Income Is An Oxymoron

seekingalpha11-27

BST's dual mandate of growth and income via covered call writing and a managed distribution plan has led to underperformance, lagging the NASDAQ by 9% YTD.The fund's 8% "dividend yield" is misleading,...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBST: Tech Plus Dividend Income Is An Oxymoron\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-27 15:47 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4740553-bst-tech-plus-dividend-income-is-an-oxymoron><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>BST's dual mandate of growth and income via covered call writing and a managed distribution plan has led to underperformance, lagging the NASDAQ by 9% YTD.The fund's 8% \"dividend yield\" is misleading,...</p>\n\n<a href=\"https://seekingalpha.com/article/4740553-bst-tech-plus-dividend-income-is-an-oxymoron\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BST","symbol_name":"BlackRock Science and Technology Trust","start_time":0,"source_url":"https://seekingalpha.com/article/4740553-bst-tech-plus-dividend-income-is-an-oxymoron","article_id":"2486881440","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/521227619/image_521227619.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2486881440","pubTimestamp":1732693656,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"BST's dual mandate of growth and income via covered call writing and a managed distribution plan has led to underperformance, lagging the NASDAQ by 9% YTD.The fund's 8% \"dividend yield\" is misleading,","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BST":"BlackRock Science and Technology Trust"},"translate_title":"BST：科技加股息收入是一个矛盾","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BST":0.9},"content_text":"BST's dual mandate of growth and income via covered call writing and a managed distribution plan has led to underperformance, lagging the NASDAQ by 9% YTD.The fund's 8% \"dividend yield\" is misleading, as it relies on option writing and capital returns, limiting upside and hindering long-term growth.Portfolio changes show increased concentration and a significant rise in Nvidia's weight, highlighting active management's inconsistency compared to passive index trackers.I downgrade BST to sell due to the challenges of beating the NASDAQ with a mandatory distribution plan that forces trading and capital returns.   BlackAperture/iStock via Getty Images  Introduction I analyzed the BlackRock Science and Technology Trust (NYSE:BST) in January. At the time, I found it as an interesting active investment strategy that combines growth and income via covered call writing and a managed distribution plan (MDP). Unfortunately, I overestimated the manager's ability to execute this duel and opposing mandate successfully. BST has underperformed the NASDAQ (NDX) by 9% YTD. Performance The fund's total returns this year and in the last five years have been poor compared to the NDX, as illustrated in Figures 1 & 2. Looking back from inception, BST did have a period of outperformance, attributed to active management, i.e., stock picking. However, as many investors are keenly aware, consistently beating the market is extremely difficult. This fund's MDP further hinders total return potential with call/put writing, capital returns, and forced selling. As a portfolio manager, deciding when to buy or sell is very important, and mandatory monthly payouts require either higher cash reserves or forced selling.   Created by author with data from Capital IQ Not A Real Yield A fund with a “dividend yield” of 8% that invests in tech is an oxymoron, two words that cancel each other out. Tech stocks have low dividends, and most capital returns come as share buybacks. Thus, to produce a distribution of $0.25 per share or US$8.7m every month, the fund needs to generate cash, which is done by writing options on its holdings; these premiums work great if the stock trades within the option contract range and expires worthless. If the shares move beyond the contract range, the fund must deliver the shares, limiting the upside. The fund may sell shares at a gain or loss if the option premium cash flow is insufficient. Finally, it can distribute cash on hand as a return of capital, i.e., payback from investor funds or capital reduction. All the above are limitations to actively managing a fund for long-term capital appreciation in a fast-mover tech sector. Portfolio Changes I compared the current BST portfolio with that seen in January. The two main standouts are the increased level of concentration, with the top 10 holdings increasing from 45% to 60% of AUM, and the massive increase in Nvidia (NVDA) weight from 8.5% to 19.3%. According to the semi-annual report, the managers increased NVDA in the year's second half, i.e., after the big rally. The main dilemma with actively managed funds is the potential for inconsistency and changes in strategy that are not present in passive, well-defined index trackers. BlackRock  Created by author with data from Capital IQ Portfolio Upside I gathered consensus estimates and price targets to gauge the current portfolio’s upside and valuation. Using data for 71% of AUM, I calculated a weighted average upside of 10% to YE25, driven down by poor market upside at Apple and several others. The fund’s research most likely disagrees with the consensus. The expected dividend yield is 0%. Thus, the 8% yield needs to be generated by writing options and trading, which, as mentioned earlier, can hinder portfolio management. In Fig 5, I calculated the portfolio's EPS growth at 24% for 2025, driven mainly by NVDA and Broadcom (AVGO), while the absolute PE seems high at 25x but, in my view, is still very reasonable on a relative growth basis or PEG at 1.3x. This is a high-growth portfolio at a reasonable valuation. If not for the mandatory distribution policy, this fund could have a better chance of beating the NDX.   Created by author with data from Capital IQ  Created by author with data from Capital IQ Conclusion  I downgrade BST to Sell. Actively managing a tech fund to beat the NASDAQ is already challenging. Adding the handcuffs of a mandatory distribution plan may force trading or capital returns that make beating the market a non-starter. In my view, investors seeking growth or income can find better and cheaper alternatives.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2486881440"}