BlackRock (NYSE:) is making changes to some of its highest-yielding funds. Today we’re going to zero in on a 13%-yielder that’s at the center of the action: the tech-focused BlackRock Innovation and Growth Term Trust (NYSE:).
Yes, the fund focused on tech. So the pullback in American AI stocks on news that Chinese AI chatbot DeepSeek, which was launched earlier this month, can rival the latest version of Open AI’s ChatGPT, factors in here, too.
BIGZ is a closed-end fund (CEF) with nearly $2 billion in assets under management—enormous for a CEF (The “BIG” is right in the ticker, after all).
So any changes to BIGZ are worth watching, especially when, as is the case now, those changes (including a big share-buyback program) are partly a response to activist action, both around the fund’s sponsor, BlackRock, and the CEF industry as a whole.
Let’s dive into exactly what’s going on here.
The best place to start, actually, is with BlackRock’s other two big tech CEFs, the 8.2%-yielding BlackRock Science & Technology (NYSE:) and the BlackRock Science and Technology Trust II (NYSE:), another 13% yielder. Unlike BIGZ, these funds aren’t changing, for reasons that should be clear in a bit.
(BST and BSTZ are both buy recommendations of my CEF Insider advisory.)
These funds’ portfolios overlap, but they’ve recently taken different paths. BSTZ, for its part, has been focusing more on private tech firms, as well as fast-growing public companies. NVIDIA (NASDAQ:), its largest holding, and Astera Labs (NASDAQ:), are examples of the latter. Both are at the heart of AI’s continued growth.
Even with the DeepSeek news on Monday, and the pressure it put on American AI stocks, these two have still posted strong gains, up 31% and 34%, respectively, since Astera’s IPO in March 2024.
However, as the developments around DeepSeek showed us, there’s still a lot of uncertainty around AI. That’s why BSTZ’s sister fund, BST, bolsters its NVIDIA position with mature tech firms like Microsoft (NASDAQ:), Apple (NASDAQ:), Meta Platforms (NASDAQ:) and Amazon.com (NASDAQ:), all top-10 holdings.
As a result, BST has been less volatile in the past year, on the basis of the performance of both its underlying portfolio (a.k.a. its net asset value, or NAV), and its market price (both including dividends).
(Since CEFs have fixed share counts, there is often a difference between the market price and NAV returns, with the market price often discounted).
But BSTZ (in purple below) put up a stronger market price–based total return as investors got aggressive about tech after the 2022 rout.
BST and BSTZ Combine for Strong Gains, Lower Volatility
This, by the way, is exactly why we hold this duo—to get tech exposure and use BST’s large-cap focus to temper our volatility.
That’s worked well, with BST and BSTZ delivering us a 24% average return between them in the last year, well above the ’s 16% return, with a big slice of that in cash, thanks to their 10.5% average yield.
So where does BIGZ fit in here? It has some investments in private firms, similar to BSTZ and, to a lesser extent, BST. But the key difference is that BIGZ has major holdings a little outside tech, with military contractor Axon Enterprise (NASDAQ:), data-center servicer Vertiv Holdings (NYSE:) and plumbing/HVAC specialist Comfort Systems USA (NYSE:) being its biggest positions.
As you can see, the focus here is on small firms that are growing fast. This should mean fast returns for BIGZ—but that’s not what we’ve seen.
Check its performance based on the latest numbers for its total NAV return (or, again, the return of its underlying portfolio, including dividends).
BIGZ’s Portfolio Gets Dusted
As you can see, it was much weaker than those of the other two CEFs. This lag was unacceptable, as activists reminded BlackRock, which responded by shaking up BIGZ in several ways.
For one, BIGZ will get a new management team and a new mandate tightening its focus on tech. You can read more about those changes here.
BlackRock is also bringing in a buyback program under which shareholders can tender shares of BIGZ for 99.5% of the fund’s NAV per share. The company is offering this for half of the total number of shares outstanding, and the stop and start dates haven’t been announced yet. That’s a massive program that should help support BIGZ’s market price.
BIGZ’s Big Opportunity
With a 9.1% discount to NAV, investors can buy BIGZ at 90.9 cents on the dollar and sell at 99.5 cents on the dollar, a 9.5% gain separate from BIGZ’s market performance.
The risk here is that, if BIGZ’s NAV drops before an investor can redeem their shares, they might end up redeeming them for less. But in that case, they could simply ignore the redemption and keep collecting BIGZ’s 13% dividend—provided the fund’s new management keeps earning enough profits to maintain that payout.
My Prediction: DeepSeek Will Put AI—and These 9.5% Dividends—in Hyperdrive
One thing we do NOT want to do now is let something like a cheaper AI chatbot from China scare us out of the field entirely.
If anything, this development will accelerate the growth of AI—and more importantly, its integration into the apps and other tools we use every day.
Because if there’s one thing you can bet on it’s this: China’s move will prompt American tech giants to double down and produce even cheaper, better AI—and much more quickly than would otherwise be the case.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”
#Dividend #Soar #LittleReported #Buyback
