BlackRock Capital Allocation TrustNYSE: BCAT

24/7 Wall Street Insights The Federal Reserve's rate cut to calm market speculation may potentially re-fuel higher inflation and possibly trigger a recession.

BlackRock's Capital Allocation Term Trust offers a high yield of 21% with monthly distributions, providing a steady income stream for investors. BCAT's portfolio strategy includes a diverse mix of equities and fixed income securities. Part of BCAT's strategy includes a covered call strategy that implements out-of-the-money approach, which allows for greater capital appreciation.

Closed-end funds have unique features that make them very attractive investment vehicles for the right asset classes and investors who understand them. Especially for complex and/or less liquid asset classes, like corporate senior loans, high-yield bonds, collateralized loan obligations, and the more recently discovered (by retail investors) "private credit" Activist and institutional investors are worth watching, so we can piggyback onto their efforts in the closed-end fund world.

BCAT: Rising Pressure from Activist Investors and Appealing Discounts

The BlackRock Capital Allocation Term Trust offers investors exposure to private credit and private equity assets. The fund has delivered poor historical performance but is now trading at a substantial discount to NAV.

BlackRock Capital Allocation Term Trust provides exposure to an actively managed portfolio split between equities and fixed-income. The fund continues to operate without leveraging up from borrowings, which I view as a positive in the current environment. BCAT's performance has been respectable, with the potential for further discount narrowing, and improved results could come from discount contraction from activist pressure.

The BlackRock Capital Allocation Term Trust is an interesting term closed-end fund that liquidates in 2032. The fund invests in both stocks and bonds, which is unusual for a term fund, but it could actually work out to the benefit of investors. The fund employs next to no leverage to boost its effective yield, so it is not especially volatile relative to other funds.

Boaz Weinstein, head of Saba Capital Management, is taking on BlackRock over a number of closed-end funds. Weinstein aims to switch BlackRock Capital Allocation Term Trust from a closed-end fund to an open-end fund to eliminate the discount to NAV. BCAT's total return performance since inception has been disappointing, but it offers a nice dividend yield and exposure to private investments.

On July 31, 2023, Saba Capital Management, L.P. (Trades, Portfolio), a renowned investment firm, added 236,990 shares of First Trust New Opportunities MLP & Energy Fund ( FPL , Financial) to its portfolio.