The Persistent NAV Discount of BlackRock Science and Technology Trust: A Tale of Valuation Mispricing and Interest Rate Dynamics

The BlackRock Science and Technology Trust (BST) has long been a case study in the peculiarities of closed-end fund pricing. As of September 2025, the fund trades at an average daily discount of -5.16% to its net asset value (NAV), a figure that fluctuates between -7.82% and -8.85% depending on the measurement period, according to BlackRock discount updates. This persistent discount, despite BST's outperformance against the broader tech sector and S&P 500 in 2025 per its monthly distribution announcement, raises critical questions about valuation mispricing and the role of macroeconomic forces like interest rates.

Valuation Mispricing: Structural and Sentiment-Driven Forces

Closed-end funds like BST are inherently prone to discounts or premiums due to their structural design. Unlike open-end mutual funds, BST has a fixed share count, and its price is determined solely by secondary market demand, as BlackRock's Fed rate cuts analysis explains. This creates a disconnect between the fund's intrinsic value (NAV) and its market price. For BST, the discount is exacerbated by its portfolio composition: heavy exposure to volatile technology and science sectors, which face regulatory uncertainties and cyclical demand shifts, as discussed in investments trade below NAV.

Investor sentiment further compounds the issue. Despite BST's 7.2% yield-driven by a managed distribution policy and covered call strategies per the monthly distribution announcement-investors have shown reluctance to bid up its shares. This could stem from broader market skepticism about tech valuations or a preference for cash-rich alternatives in a high-interest-rate environment. As one analyst notes, "The discount reflects a lack of conviction in the fund's ability to outperform in a world where investors are prioritizing safety over growth," according to a Seeking Alpha analysis.

Interest Rate Tailwinds: A Double-Edged Sword

The Federal Reserve's 2025 rate cuts, which reduced the federal funds rate to 4.00–4.25% in September (per BlackRock's Fed rate cuts analysis), have introduced a complex dynamic. Lower rates typically reduce borrowing costs and stimulate economic activity, which should benefit tech-driven growth stocks. Yet BST's discount has remained stubbornly wide, even as the Fed projects further cuts to 3.4% by year-end according to the same BlackRock analysis.

The disconnect may lie in how rate cuts affect investor behavior. While lower rates make bonds and alternative investments more attractive, they also reduce the appeal of high-yield equities, including tech-focused funds like BST (as noted in BlackRock's Fed rate cuts analysis). Additionally, elevated long-term interest rates-such as the 10-year Treasury yield-continue to weigh on valuations, as investors discount future cash flows more aggressively, a dynamic highlighted in the CEFConnect profile. This creates a paradox: rate cuts aim to boost growth, but they may also depress the relative value of growth-oriented assets like BST.

The Path Forward: Opportunity or Risk?

BST's discount presents a nuanced puzzle. On one hand, its 7.2% yield and outperformance against benchmarks suggest undervaluation. On the other, structural factors and macroeconomic headwinds could prolong the discount. For investors, the key lies in balancing these forces. As one market observer puts it, "The discount is a function of both market psychology and economic fundamentals. Until one of those shifts, BST will likely remain a bargain-or a trap," a view echoed in the Seeking Alpha analysis.

In the coming months, the Fed's next moves and the tech sector's resilience will be critical. If rate cuts spur a broader market rally, BST's discount could narrow. But if inflation or fiscal concerns resurface, the discount may widen further. For now, the fund remains a testament to the interplay of valuation mispricing and monetary policy-a reminder that markets are as much about sentiment as they are about numbers.