The stock market is experiencing a rally despite various concerns and worries. Concerns over bonds and Treasury rates are being taken into consideration, with expectations of a lower high leading to a potential bond rally. Tech stocks are also being discussed as an alternative source of income through dividends, particularly the Nasdaq-related dividends which trade opposite long rates. A strategy involving covered calls on tech holdings is being recommended to generate income in a volatile market.
Closed-end funds (CEFs) are highlighted as a preferable investment option over mutual funds and ETFs due to their ability to leverage and sell options, generating higher yields. Discounts on CEFs are mentioned, with yields averaging around 7.8%. Specific funds such as the Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX) are recommended for their ability to offer regular distributions and yield while holding blue-chip tech stocks. The fund is currently trading at a discount to its net asset value, making it an attractive option during periods of high volatility.
The BlackRock Science and Technology Term Trust (BSTZ) is focused on investing in companies with rapid growth potential in science and technology. The fund also uses covered calls to generate income and offers exposure to private holdings not typically accessible to individual investors. Despite uneven performance since its inception, BSTZ has shown strong growth in recent years, outpacing some of its counterparts. The term trust nature of the fund may influence its trading behavior as it nears its dissolution date around 2031.
The Virtus Artificial Intelligence & Technology Opportunities Fund (AIO) is another term trust with a focus on artificial intelligence companies and other technology opportunities. The fund utilizes debt leverage to invest in a mix of common stocks, convertible securities, and junk debt. AIO’s performance is being closely monitored, with factors such as the fund’s discount and unique portfolio contributing to its overall performance. The fund is also expected to trade closer to its net asset value as it approaches its term date in 2031.
Overall, the article emphasizes the potential for generating income and taking advantage of discounts in the current market environment through closed-end funds. By strategically investing in funds that utilize covered calls and leverage, investors may be able to capitalize on the volatility in the market and benefit from higher yields. The recommendations provided offer a blend of tech-focused and AI-focused funds with varying strategies for income generation and potential growth opportunities.
