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STK: Outperforming The Nasdaq

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Outsider concept. Beating competitors and predominate nan market.

Olivier Le Moal

Thesis

Columbia Seligman Premium Technology Growth Fund (NYSE:STK) is an equity "buy-write" closed extremity fund. The money is agelong a portfolio of exertion related companies and writes telephone options connected nan Nasdaq 100, options which will typically scope from 25% to 90% of nan underlying worth of nan money holdings:

Under normal marketplace conditions, nan fund’s finance programme will dwell chiefly of investing successful a portfolio of equity securities of exertion and technology-related companies arsenic good arsenic penning telephone options connected nan NASDAQ 100 Index aliases its exchange-traded (ETF) money balanced connected a month-to-month basis. The aggregate notional magnitude of nan telephone options will typically scope from 25% to 90% of nan underlying worth of nan fund’s holdings of communal stock. The money expects to make existent income from premiums received from penning telephone options connected nan NASDAQ 100 aliases its ETF equivalent.

To statement that nan money has a flimsy ground betwixt nan holdings (only 66 names successful nan portfolio currently) and nan written calls which are done connected nan index. We for illustration nan truth that nan money is concentrated connected a smaller number of names erstwhile compared to nan scale because it allows nan portfolio managers to make alpha for nan fund, progressive guidance which has proven its worthy passim clip via its stellar performance.

We for illustration nan truth that nan telephone penning is move and limited connected marketplace conditions. Active guidance of telephone penning is nan measurement to spell successful our opinion. The main flaw of galore options systematic strategies is that they neglect to set notional erstwhile nan main pricing inputs are excessively costly aliases excessively cheap. STK has a very consecutive guardant lever erstwhile considering nan overwritten notional:

In determining nan level (i.e., 0% to 90%) of telephone options to beryllium written connected nan NASDAQ 100, nan Investment Manager’s Rules-based Option Strategy is based connected nan CBOE NASDAQ-100 Volatility Index (the VXN Index). The VXN Index measures nan market’s anticipation of 30-day volatility implicit successful nan prices of near-term NASDAQ 100 Index options. The VXN Index, which is quoted successful percent points (e.g., 19.36), is simply a starring barometer of investor sentiment and marketplace volatility relating to nan NASDAQ 100 Index. In general, nan Investment Manager intends to constitute much telephone options erstwhile marketplace volatility, arsenic represented by nan VXN Index, is precocious (and premiums received for penning nan action are high) and constitute less telephone options erstwhile marketplace volatility, arsenic represented by nan VXN Index, is debased (and premiums for penning nan action are low)

Basically nan CEF writes options connected almost nan full notional erstwhile VIX levels are high, and pulls backmost erstwhile VIX is low. Currently nan VIX is astir about 20, and nan money has a 49% overwritten percentage. We for illustration this move attack and we consciousness this type of lens generates alpha successful nan agelong term. To that extremity STK has outperformed nan Nasdaq twelvemonth to date, being up 19.6% versus 13.3% for nan index.

STK is simply a robust CEF that delivers connected transforming Nasdaq returns into dividends. The money employs a move overwrite strategy that is VIX dependent. The CEF has outperformed nan Nasdaq successful 2023 but is now trading astatine nan apical extremity of its historical premium range. We are truthful connected Hold for this name.

Analytics

  • AUM: $0.44 billion.
  • Sharpe Ratio: 0.7 (3Y).
  • Std. Deviation: 26 (3Y).
  • Yield: 6.8%
  • Premium/Discount to NAV: 7.14%
  • Z-Stat: 0.9
  • Leverage Ratio: 0%

Performance

The CEF has healthily outperformed nan Nasdaq successful 2023:

returns

Total Return (Seeking Alpha)

Sell vol strategies arsenic embedded successful QQQX and STK person besides outperformed nan scale connected a 1-year lookback:

return

Total Return (Seeking Alpha)

Long word STK is simply a comparable finance to Nasdaq, while QQQX trails significantly:

return

Total Return (Seeking Alpha)

Holdings

The CEF only holds 66 names successful its portfolio:

portfolio details

Portfolio Details (Fund Fact Sheet)

We tin spot from nan supra array that nan basal ratios of nan underlying companies comparison favorably pinch nan scale - i.e. little P/E ratios and P/B values. This is wherever nan portfolio head should make a difference.

The apical sectors successful nan CEF are semiconductors and software:

sectors

Top Sectors (Fund Fact Sheet)

The apical holdings are reasonably concentrated, pinch each of nan names supra a 3% weighting successful nan fund:

holdings

Top Holdings (Fund Fact Sheet)

Premium / Discount to NAV

The money is now trading adjacent to nan apical scope of its historical premium to NAV:

ChartData by YCharts

We tin spot really nan money has precocious beta to marketplace risk-on / risk-off moves, pinch nan premium contracting to zero during sell-offs. A important information of nan outperformance this twelvemonth successful STK is driven by its widening premium to nett plus value. We expect nan money to springiness it up during nan adjacent marketplace sell-off leg.

Conclusion

STK is an equity buy-write CEF. The money holds 66 exertion related names and writes telephone options connected nan Nasdaq 100 index. The conveyance employs a move telephone penning strategy that is VIX dependent. The money covers a higher percent of nan portfolio erstwhile nan VIX is precocious and a little number erstwhile nan VIX is low. Currently pinch nan VIX successful nan debased 20s nan CEF has only 49% of nan portfolio overwritten pinch telephone options. The vehicle's strategy has been successful, outperforming nan Nasdaq successful 2023 by 6%. Long word this CEF successfully transforms Nasdaq returns into dividends, exhibiting a full return capacity comparable pinch QQQ. With nan CEF now trading astatine nan apical extremity of its historical premium scope and pinch tech equities overvalued successful our opinion, we are connected Hold pinch respect to STK CEF.

This article was written by

Binary Tree Analytics floor plan picture

With a financial services rate and derivatives trading background, Binary Tree Analytics intends to supply transparency and analytics successful respect to superior markets instruments and trades._____________________________http://www.BinaryTreeAnalytics.com

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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