The stock market is seeing a rally despite a high level of worry in the market. While Bloomberg recently reported that there is no relief in sight for bonds, there are signs that relief may be on the horizon. Despite 10-year Treasury rates being lower than their recent highs last October, they are expected to continue to decrease due to a slowing economy and labor market. This could lead to a bullish trend for bonds and tech stocks that trade inversely to rates.
One way to capitalize on the potential bond and tech stock rally is by investing in closed-end funds (CEFs) that sell covered calls on their tech holdings. These funds can use leverage to sell options and generate higher yields, with some experiencing discounts of up to 17% and averaging a 7.8% yield. One such fund is the Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX), which sells covered calls on tech-heavy Nasdaq 100 stocks to generate income. Another option is the BlackRock Science and Technology Term Trust (BSTZ), which focuses on companies with rapid growth potential in the science and technology sectors. The BSTZ fund also offers exposure to private holdings in addition to publicly traded tech companies.
The Virtus Artificial Intelligence & Technology Opportunities Fund (AIO) is another CEF that offers exposure to AI companies and other technology opportunities. This fund invests in both AI companies and other businesses that stand to benefit from AI technology. While AIO lags behind ETF competition, it could potentially benefit from its current 7% discount over time as it nears the expiration of its term trust around October 29, 2031. AIO also leverages debt to amplify its portfolio, allowing for higher returns on its investments.
Overall, these CEFs offer investors a way to generate income securely and systematically during periods of high market volatility. With the potential for discounts and higher yields, investors can take advantage of opportunities in the bond and tech stock markets while managing risks effectively. By considering the different strategies and focuses of each fund, investors can diversify their portfolios and position themselves to benefit from potential market rallies in the future.
