Why I Moved On From BMEZ Despite A 14.2% Yield (Rating Downgrade)

2025-05-19 02:30:00 ET

Summary

• BlackRock Health Sciences Term Trust's discount to NAV has narrowed sharply, eroding the original deep-value thesis and making the risk/reward profile less attractive.
• BlackRock's tender offer and increased distributions successfully closed the discount, but future activist pressure is now limited due to Saba's standstill agreement.
• The fund's high 14% yield is appealing but unsustainable, as it relies on return of capital rather than underlying earnings, especially in biotech.
• With the primary catalyst gone and discount contraction played out, I prefer to sell BMEZ and seek deeper discounts elsewhere in the CEF universe.

The BlackRock Health Sciences Term Trust (BMEZ), is a closed-end fund focused on healthcare and biotech. There's a modest amount of call overwriting going on as well. I wrote it up in November '23 when it traded at a 17.52% discount to Net Asset Value (NAV) and, again, in November '24 at an ~11% discount . Saba Capital Management was making quite a bit of noise about the discounts BlackRock ( BLK ) funds were trading at. Fast-forward to today and things are very different, with the fund trading at an unlikely 3.4% discount only....

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