Blackrock Enters Oversold Territory
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The DividendRank formula at Dividend Channel ranks a coverage universe of thousands of dividend stocks, according to a proprietary formula designed to identify those stocks that combine two important characteristics — strong fundamentals and a valuation that looks inexpensive. Blackrock Inc (Symbol: BLK) presently has an excellent rank, in the top 25% of the coverage universe, which suggests it is among the top most “interesting” ideas that merit further research by investors.
But making Blackrock Inc an even more interesting and timely stock to look at, is the fact that in trading on Tuesday, shares of BLK entered into oversold territory, changing hands as low as $828.62 per share. We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30. In the case of Blackrock Inc, the RSI reading has hit 29.2 — by comparison, the universe of dividend stocks covered by Dividend Channel currently has an average RSI of 54.4. A falling stock price — all else being equal — creates a better opportunity for dividend investors to capture a higher yield. Indeed, BLK’s recent annualized dividend of 16.52/share (currently paid in quarterly installments) works out to an annual yield of 1.95% based upon the recent $848.60 share price.
A bullish investor could look at BLK’s 29.2 RSI reading today as a sign that the recent heavy selling is in the process of exhausting itself, and begin to look for entry point opportunities on the buy side. Among the fundamental datapoints dividend investors should investigate to decide if they are bullish on BLK is its dividend history. In general, dividends are not always predictable; but, looking at the history chart below can help in judging whether the most recent dividend is likely to continue.
Click here to find out what 9 other oversold dividend stocks you need to know about »
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
BlackRock cares about money, not ‘woke’ politics
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A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here . You can listen to an audio version of the newsletter by clicking the same link.
London (CNN Business) Every year, BlackRock ( BLK ) CEO Larry Fink, one of the most powerful people in global finance , pens a letter to chief executives that’s required reading for business leaders.
Fink’s insistence that companies need to disclose more about their climate plans and seriously consider their role in society has helped change what’s expected of Corporate America.
His views have also drawn criticism. Some on the political right claim Fink goes too far in telling businesses to be socially and environmentally conscious. Others on the left say he isn’t going far enough.
In his latest letter to CEOs published Tuesday , Fink has issued a response that amounts to: I’m just a capitalist.
The push for companies to reassess their priorities is “not about politics,” he said.
“It is not a social or ideological agenda. It is not ‘woke,’” Fink wrote. “It is capitalism.”
Fink said companies need to set short, medium and long-term targets to reduce greenhouse gas emissions because doing so is “critical to the long-term economic interests” of shareholders.
He also said it’s crucial that leaders take a stand on issues important to employees and customers.
“It’s never been more essential for CEOs to have a consistent voice, a clear purpose, a coherent strategy and a long-term view,” Fink wrote. “Your company’s purpose is its north star in this tumultuous environment.”
Fink said that BlackRock does not advocate for widespread divestment from oil and gas companies, since there are firms in the industry making changes that will be essential to achieve net-zero emissions. Plus, “governments and companies must ensure that people continue to have access to reliable and affordable energy sources,” he added.
“Any plan that focuses solely on limiting supply and fails to address demand for hydrocarbons will drive up energy prices for those who can least afford it, resulting in greater polarization around climate change and eroding progress,” Fink said.
Why it matters: BlackRock is the world’s biggest money manager, ending last year with more than $10 trillion under management. That means the company has huge influence over how billions of dollars are allocated, and can sway other firms as they set policy.
BlackRock’s commitment to net-zero emissions by 2050 and socially-minded business priorities has been important. But Fink’s stance that companies both need to step up and “cannot be the climate police” is set to continue to draw critics from across the political spectrum.
One more thing: Fink also addressed the changing relationship between employers and employees as the rate of workers quitting their jobs stands at a record high in the United States.
“Companies not adjusting to this new reality and responding to their workers do so at their own peril,” he said. “Turnover drives up expenses, drives down productivity and erodes culture and corporate memory. CEOs need to be asking themselves whether they are creating an environment that helps them compete for talent.”
Stocks fall as benchmark US Treasury yield hits 2-year high
The yield on the benchmark 10-year US Treasury note jumped to its highest level in two years early Tuesday, rattling investors who were already on edge about how policymakers will respond to high inflation.
The latest: US stock futures were sharply lower in premarket trading as Wall Street eyed the turbulence in the bond market.
Government bond yields, which move opposite prices, have risen dramatically since the start of the year as investors brace for the Federal Reserve to respond more aggressively to the spike in consumer prices, which are rising at the fastest pace in nearly four decades.
Fed officials have indicated in recent days that they’d be willing to hike interest rates more than three times this year if needed. While borrowing costs would remain near historic lows, that would mark a notable shift after a long period of rock-bottom rates.
In a Deutsche Bank survey of roughly 500 market participants published Tuesday, higher-than-expected inflation and a more hawkish Fed tightening cycle were identified as the two biggest risks to market stability.
The VIX, a measure of US market volatility, rose almost 13% this morning to its highest level so far this year.
Over the weekend, billionaire investor Bill Ackman recommended on Twitter that the Fed initially hike rates by 0.5% instead of by 0.25% as expected in order to “restore its credibility” and “demonstrate its resolve on inflation.”
“The Fed is losing the inflation battle and is behind where it needs to be, with painful economic consequences for the most vulnerable,” Ackman said.
Ben & Jerry’s, meet Aquafresh and Advil
Unilever UL is willing to pay big money for the company that makes products like Advil, Tums and Aquafresh toothpaste as it tries to revive its sluggish stock and ramp up its focus on health products.
GlaxoSmithKline GLAXF said over the weekend that it had received three “unsolicited” proposals from Unilever to acquire its consumer healthcare business, which it runs as a joint venture with Pfizer. The latest had a price tag of £50 billion ($68 billion).
No deal yet: GSK has rejected the offers, which it said were too low. It’s planning to spin off the division later this year, under pressure from shareholders including hedge fund Elliott Investment Management.
Unilever could still sweeten its bid. The company said Monday that it’s pursuing a strategic overhaul that would involve expanding its portfolio of health, beauty and hygiene products. More details will be announced by the end of the month.
But investors aren’t thrilled about the idea. Unilever’s shares fell 7% in London on Monday and are down another 2% in early trading on Tuesday.
On the radar: Analysts at Berenberg said that Unilever should be careful about pivoting away from its food and drink business, which they said “actually offers some of Unilever’s most attractive categories,” such as ice cream and cooking ingredients.
Up next
Goldman Sachs GS PNC PNC Truist TFC BNY Mellon,andreport results before US markets open. J.B. Hunt follows after the close.
Also today:
The Empire State Manufacturing Index posts at 8:30 a.m. ET.
The NAHB Housing Market Index follows at 10 a.m. ET.
Blackrock Slips as Firm Likely to Get into Investment Mode
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By Dhirendra Tripathi
Investing.com – BlackRock stock (NYSE:BLK) fell 2.4% on Friday on concerns the fund giant is likely to get into investment mode again, a move that could keep its profit margin under pressure.
“Looking forward, they are going into investment mode again,” Reuters quoted Edward Jones analyst Kyle Sanders as saying. “They are going to spend a lot, and that is probably going to make it tough for them to really have meaningful profit margin and EPS growth in 2022,” he said, as quoted by the agency.
For the fourth quarter ended December 31, Blackrock’s 14% gain in revenue, to $5.10 billion, just met expectations while adjusted profit per share of $10.42 topped estimates.
Performance fees, the sole revenue stream to erode in the fourth quarter, fell by $90 million, primarily reflecting lower revenue from liquid alternative products.
Assets under management at the world’s largest money manager scaled a new peak of $10 trillion by the end of December, up from $8.68 trillion a year earlier.
“Our business is more diversified than ever before – active strategies, including alternatives, contributed over 60% of 2021 organic base fee growth,” Chief Executive Officer Larry Fink said in a statement.
Net inflows for the quarter were at $212 billion, of which long-term net flows accounted for $169 billion.
ETFs attracted a net $104 billion, 11% higher than a year ago and a record for the company, Blackrock said.
BlackRock now manages $2.6 trillion in actively-managed funds that include ETFs and mutual funds. The firm’s alternatives business, which includes hedge funds, saw $5.5 billion of inflows, taking total assets to $265 billion, according to Bloomberg.
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BlackRock BSTZ Fund: Tech-Focused CEF Faces A Challenging 2022
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oatawa/iStock via Getty Images
The BlackRock Science & Trust II (BSTZ) is a closed-end fund (CEF) that invests in technology sector companies. The attraction here is the strategy that includes investments in private companies offering exposure to equities that are otherwise unavailable for trading to most investors. BSTZ also utilizes an options selling strategy on its public stocks portfolio meant to support its managed distribution policy that currently yields a compelling 7.3%. That being said, we highlight what has been increasing levels of volatility in both the fund and the broader technology sector overall. While the private company investments boosted returns in recent years, the segment is particularly exposed in the current environment with illiquid alternative assets adding to risks. We see the lack of transparency in the fund’s illiquid investments as a weakness that can open the door for further downside.
What is the BSTZ Fund?
BSTZ focuses on rapid-growth tech, among next-generation and emerging companies with cutting-edge innovations. The fund is actively managed, meaning the portfolio holdings are not meant to track any particular index. Among key fund facts, BSTZ began trading in January 2019 and has amassed $2.7 billion in net assets. The gross expense ratio listed at 1.33% is relatively high but consistent with other actively managed funds and CEFs in the category.
As mentioned, the fund writes call options on the underlying equities in its portfolio. The effort as part of risk management allows the fund to collect the option premium which generates income and also represents a partial hedge against a market downside. With the most recent update as of Q3, approximately 20% of the portfolio was “overwritten” implying about one-fifth of the portfolio was matched with covered calls. All else equal, a call writing strategy will tend to limit the fund’s volatility compared to an unhedged version of the same equity portfolio.
BSTZ Portfolio
The current portfolio features 104 holdings with a global profile considering around 60% of the compares are based in the U.S. companies while the rest of the portfolio includes exposure to various regions including Asia-Pac and Europe. More than half of the portfolio is among large-cap companies with a market cap above $10 billion, while 32% is based on small-caps. By sub-industries, the fund has a tilt among “software application & services” measured at 47% of the fund, followed by chip-stocks in semiconductors and related equipment manufacturers at 23%. Keep in mind that the “tech” sector classification has room for interpretation to include everything from e-commerce names, media players, as well as fintech companies.
The current largest position in the fund is “Project Kafka Ordinary Private Shares” with a 3.7% weighting. Any position in the portfolio noted as “project” refers to one of the fund’s 27 private investments, comprising 28.4% of total assets or a total commitment of approximately $934 million as of Q3. In this case, Kafka is related to the fund’s $101.2 million investment in Swedish fintech known as “Klarna Bank AB” recognized for its payments solutions for e-commerce players.
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Down the list of holdings, other high-profile privately-held companies include “GitLab” (which went public in October 2021 under the symbol GTLB) and “ByteDance Ltd”, the owner of the social media platform “TikTok”. The expectation is that some of these may ultimately proceed with an initial public offering as an exit through a liquidity event. Several of the holdings were initially acquired in the secondary private market while the companies have since become publicly traded. Notably, BSTZ invested in the electric vehicle manufacturer Arrival Ltd (ARVL) in Q4 2020 before the company’s IPO. The fund has not announced any new private company investments since Q1 of last year while any new position would be at the discretion of the portfolio manager.
Among publicly traded companies, Marvell Technology, Inc. (MRVL) with a 3.5% weighting is the second-largest holding. BSTZ also has a position in Tesla, Inc. (TSLA) at 3% of the fund. It’s an overall extensive portfolio with many several high-growth tech names like Zscaler, Inc. (ZS), Block, Inc. (SQ), Lightspeed Commerce Inc. (LSPD), Twilio Inc. (TWLO), CrowdStrike Holdings, Inc. (CRWD), Coupa Software (COUP), and Roku, Inc. (ROKU) as a few examples. Overall, BSTZ has a good diversification within tech, limiting company-specific risks.
Finally, we note that the current distribution of the fund includes a monthly payout of $0.193 per share, yielding 7.3% on a forward basis. This amount was increased by 12.3% from $0.171 per share in October. In 2021, the entire distribution was made from realized long-term capital gains although the company has previously made distributions structured as a return of capital (ROC). In November, BlackRock announced several funds including BTZS authorized a share repurchasing program through 2022 representing up to 5% of outstanding shares.
BSTZ Performance
2020 was a big year for the fund with a total return of 95%, surging from the initial pandemic crash, and outperforming tech amid broader trends in the financial market. Despite wider swings of volatility in 2021, the fund maintained momentum, returning 16% at the market price or 8% as a total return to the NAV last year. Since its inception, BSTZ has returned a cumulative 85%, which lags the NASDAQ-100 (QQQ), as a reference point which is up 100% over the period. From the chart below, we can see that BSTZ was leading for much of 2021 before a more recent selloff.
Data by YCharts
Indeed, the fund’s weakness has been apparent just over the last few months considering BSTZ is now down about 25% from a high in early November. This follows what has been the increasing levels of volatility into rising interest rates particularly among the segments the fund has a concentration in, mainly software application and high growth tech.
Data by YCharts
Oftentimes with CEFs, a large spread can arise with a widening discount to NAV which explains some of the share price weakness. The current discount to NAV at 4% is only marginally off a parity level reached just weeks ago and still above historical discounts for the fund at more than -8%. The challenge as it relates to BSTZ is its alternative strategy that includes private companies that simply don’t have a liquid secondary market to accurately value the positions. In other words, the “NAV” for this fund is based on partially stale pricing inputs considering the portion of the portfolio that is not marked-to-market daily.
Data by YCharts
The result is that the pricing of the investments on the fund’s balance sheet may not reflect the reality of their true market value. In this case, BSTZ investors are left in the dark regarding the actual performance of some underlying holdings. While a private company in the portfolio like analytics provider “DataBricks” doesn’t have a liquid market signal on pricing, it’s safe to assume the company’s value has declined alongside the industry.
By this measure, the selloff in BSTZ from high follows with the performance of some other high-growth tech funds like the ARK Innovation ETF (ARKK) down by nearly 40% from its high over the past 6-months or even the Renaissance IPO ETF (IPO) which share some overlapping holdings.
Data by YCharts
From the chart above, we also include the recent drawdown of other tech-focused CEFs. BSTZ’s companion fund in the BlackRock Science and Technology Fund (BST), which follows a more traditional strategy of only investing in public equities along with the covered calls component, has declined by 14.5% from its high. There is also the Columbia Seligman Premium Tech Growth (STK) down 9%, and the Virtus AllianzGI Artificial Intelligence & Tech Opportunities Fund (AIO) down 8%.
To be clear, each of these funds follows different strategies and is not directly comparable. The point here is to say that BSTZ is higher-risk within this CEF group because its private company holdings add a layer of uncertainty.
BSTZ Price Forecast
If we could be sure that the tech selloff was over and innovative high-growth segments were set to embark on a new wave of positive momentum, a case could be made that BSTZ was well-positioned to lead higher. We are taking a more cautious approach with a view that the private company holdings should remain under pressure going forward as one of the more speculative segments of the market.
Anecdotally, the valuations of the private companies are based on either announced funding rounds or through sometimes infrequent private company equity sales. It’s not a stretch to assume that in the current environment, deals going forward are going to be made at lower valuations against higher discount rates. If 2021 was a record year for IPOs, 2022 is already set up to be a whimper with interest rates surging and broader macro concerns. The potential for a deteriorating economic growth environment could add to long-term growth concerns and force a reassessment of the tech companies’ earnings potential.
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Final Thoughts
BSTZ is an interesting fund that combines the allure of a high-yield income strategy with high-growth technology stocks and pre-IPO private companies. The recent selloff and volatility are a reminder that this segment remains high risk and remains exposed to broader macro trends.
The call we are making is to expect the volatility to continue with BSTZ facing pressures from the portion of its portfolio in illiquid investments. The current discount to NAV at 4% looks rich in our opinion, opening the door for a bearish widening and further downside in the stock price. While the 7.3% dividend yield is compelling, several other CEFs can offer similar yields with a more vanilla strategy. We would be tactical buyers of BSTZ on any downside below $25 per share which would imply a yield at the market price above 9.0% which in our view can represent a more attractive reward to risk setup.
West Virginia Treasury Drops BlackRock Over Stance on Climate Risk
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The State Treasurer is putting ESG in the political crosshairs by divesting from an asset manager based on its environmental and sustainable approach to investing.
West Virginia’s Board of Treasury Investments, which manages $8 billion in state operating funds, has dropped BlackRock money market funds from its portfolio, citing concerns over the firm’s focus on environmental, social, and governance investing. The Board of Treasury also cited BlackRock’s holdings in Chinese companies for its decision.
On Monday, hours before BlackRock chief executive officer Larry Fink released his annual letter to CEOs, West Virginia State Treasurer Riley Moore announced the news.
“The decision was based on recent reports that BlackRock has urged companies to embrace ‘net zero’ investment strategies that would harm the coal, oil, and natural gas industries, while increasing investments in Chinese companies that subvert national interests and damage West Virginia’s manufacturing base and job market,” the announcement said.
Although West Virginia’s investment with BlackRock is minuscule — and low fee — compared to the behemoth’s $10 trillion under management, the decision highlights the potential political risk of CEOs like Fink addressing challenges such as the environment, social issues like income inequality, and making decisions based on multiple stakeholders, not just investors in its stock. Last year, in a huge move for an asset manager, Fink declared that “climate risk is investment risk.”
A spokesperson for BlackRock declined to comment on the news. Fink’s letter addressed stakeholder capitalism as well as the asset manager’s emphasis on environmental, social, and governance issues. Among other things, the letter covered the changing world of work, the explosion of new sources of capital, and an initiative to give clients more of a say in proxy voting. “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” he wrote.
Fink’s letter showed he is also aware of the criticisms of the firm’s policies based on politics. Fink went on to write, “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.”
As of December 31, West Virginia’s money market pool held nearly $1.25 million in BlackRock liquidity indexes, according to the state’s monthly holdings reports.
Moore, the Treasurer, said investing with BlackRock “runs contrary” to his duty to ensure that taxpayer dollars are managed responsibly. He also said in a statement that he thinks BlackRock’s decision to invest in China is “a bad strategy,” because he believes the country has engaged in human rights violations and had a role in “creating the COVID-19 global pandemic.” However, the results of a U.S. Intelligence investigation in 2021 found no evidence that the COVID-19 virus was weaponized.
Moore’s message echoes that of a recent ad campaign run by a Washington, D.C.-based “anti-woke” group called Consumers’ Research that targeted BlackRock for these issues. That ad campaign claimed that BlackRock is “investing your money” in China and that the firm’s ESG policies were in violation of fiduciary duty laws. (It’s untrue that BlackRock’s ESG policies are in violation of any fiduciary duty laws.)
West Virginia’s Board of Treasury Investments is one of the first state managers of public funds to explicitly drop an asset manager for its ESG stance, although it may not be the last. In September 2021, a Texas law prohibiting state pension plans from investing with firms that boycott energy companies went into effect. So far, one fund, the Teacher Retirement System of Texas, hasn’t needed to drop any investments from its portfolio, according to the results of a regular year-end audit of compliance with such laws.
Even if TRS had, BlackRock likely would not be on the list of divested firms. According to Fink’s 2022 letter: “Divesting from entire sectors – or simply passing carbon-intensive assets from public markets to private markets – will not get the world to net zero. And BlackRock does not pursue divestment from oil and gas companies as a policy.”
Instead, he added, “We believe the companies leading the transition present a vital investment opportunity for our clients and driving capital towards these phoenixes will be essential to achieving a net-zero world.”