In a recent analysis comparing two tech-focused closed-end funds (CEFs), the Columbia Seligman Premium Technology Growth Fund (STK) and the BlackRock Innovation and Growth Term Trust (BIGZ), it was revealed that despite both funds investing in the tech sector, they have very different investment philosophies. STK focuses on well-established, large-cap tech companies, while BIGZ has a more aggressive approach, investing in mid- and small-cap firms.
Despite BIGZ’s higher dividend yield of 7.2%, STK has outperformed in terms of returns, delivering a 40% return since its launch and maintaining a 14.5% annualized return over the past 15 years. This has allowed STK to maintain its dividend payments and even pay special dividends to investors.
One key factor to consider when investing in CEFs is the discount to net asset value (NAV). While STK currently trades at a slight premium to NAV, BIGZ has a significant discount of 16.4%. This discount could potentially provide investors with extra profit in the future, as it is expected that the fund will be liquidated at its NAV 12 years after launch.
In terms of dividend sustainability, BIGZ’s discount gives it an edge as it makes the dividend payout safer. Despite having a higher yield, the discount on BIGZ’s shares means that the fund only needs to earn 6% in the market to maintain its 7.2% payout. On the other hand, STK has a slightly lower yield but trades at a premium, meaning its payout remains consistent regardless of market conditions.
Ultimately, BIGZ may be viewed as a short-term play with more risk and potential reward, while STK is suited for long-term investors looking for steady income. It is recommended to wait for STK to sell at a discount and consider buying another high-quality tech CEF at a discount in the meantime. By conducting thorough research and analysis, investors can identify CEFs that align with their investment goals and portfolio strategies.
