Actively managed closed-end funds are emerging as a strategic investment vehicle for navigating the volatile technology sector, particularly as artificial intelligence continues to reshape the industry landscape. Three technology-focused CEFs have recently demonstrated their value by outperforming passive index funds during a challenging three-month period for tech stocks, according to market data.
The BlackRock Science and Technology Term Trust, BlackRock Science and Technology Trust, and Columbia Seligman Premium Technology Growth Fund all posted stronger returns than the State Street Technology Select Sector SPDR ETF over the past quarter. This performance comes during a period of significant turbulence in the software sector, highlighting the potential advantages of human fund managers over automated investment strategies.
Why Closed-End Funds Excel in Tech Investing
The outperformance of these actively managed funds reflects the expertise of professional managers who can navigate complex market rotations. Industry analysts note that tech-focused CEFs benefit from managers who maintain direct contacts within the technology sector and possess technical backgrounds that enable them to identify emerging trends before they become widely recognized.
Meanwhile, the technology sector is experiencing two major shifts simultaneously. The first involves changing perceptions about artificial intelligence, with discussions evolving from bubble concerns to debates about the magnitude of AI’s economic impact, according to Google Trends data.
Software Sector Faces Temporary Headwinds
Additionally, investors have been rotating away from software-as-a-service stocks toward hardware and semiconductor companies. This movement stems from concerns that new AI coding tools could reduce demand for traditional software companies, creating anxiety among shareholders of firms like Microsoft and Salesforce.
However, employment data from Layoffs.fyi indicates that technology sector layoffs have actually declined from 2022 and 2023 levels. The data contradicts fears that AI tools are eliminating jobs at software companies, suggesting the market reaction may be overdone.
Historical Precedent Offers Perspective
Historical patterns provide context for current concerns about technology displacement. When computers became prevalent in businesses during the 1990s, similar fears circulated about job losses, yet administrative assistant positions actually expanded significantly during that period.
Industry observers suggest AI is likely to create more employment opportunities than it eliminates. Software companies possess proprietary infrastructure, data, and specialized knowledge that cannot be easily replicated by individual developers using AI coding tools.
Investment Opportunities in Technology CEFs
The Columbia Seligman Premium Technology Growth Fund currently yields approximately 4.6 percent, below the average CEF yield of around 8 percent but compensated by strong total returns. The fund is managed by a team led by CIO Paul Wick, who brings three decades of technology fund management experience.
The fund’s management team comprises twelve professionals who focus on long-term sector trends rather than short-term market noise. Current top holdings emphasize hardware firms including NVIDIA, Broadcom, and Marvell Technology, while maintaining selective software exposure through Alphabet and Microsoft.
In contrast, the fund’s discount to net asset value has narrowed to approximately 3.6 percent. This represents a favorable entry point compared to the fund’s five-year average premium of 2.9 percent, suggesting potential value for investors seeking technology sector exposure.
Market observers anticipate that technology-focused closed-end funds may continue adjusting their portfolios as the software sector stabilizes, though the timeline for a full recovery in software-as-a-service valuations remains uncertain.
