What’s JEPI’s investment objective?
The JPMorgan Equity Premium Income ETF (JEPI) is an income focused covered call ETF. It’s ideal for conservative investors who are seeking income and moderate growth. The manager of JEPI invests in a portfolio of stocks that combine 3 characteristics:
- Part of the S&P 500, so in other word large cap stocks only;
- Low volatility stocks, meaning, stocks that fluctuate far less than the market. This is generally the case of defensive stocks operating in stable industries. The main metric used by the fund manager of JEPI to assess volatility is the Beta. Beta is a coefficient risk, for instance a Beta of 0.5 would indicate that the stock exhibits 50% of the volatility of the stock market;
- Value stocks: the analysts’ team of JEPI will conduct a fundamental bottom up approach to select only stocks that are considered undervalued.
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To enhance yield, JEPI issues call options to collect premiums. Issuing call options accomplishes two objectives:
- Enhance the distribution yield;
- Lower the risk.
|Number of Holdings|
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Why add JEPI to your portfolio?
- Additional income: JEPI offers an attractive yield combined with low volatility. It’s ideal for investors seeking high yields;
- Could be an alternative to owning long duration bond ETFs;
- Reduce risk of an existing equity portfolio
Is JEPI a good investment?
- Attractive yield thanks to money earned issuing call options;
- Lower volatility than investing in a S&P500 index ETF such as SPY;
- Suits conservative investors and income seekers;
- High volatility usually increases the premiums earned by the fund;
- Saves you time and effort (if you were yourself interested on writing call options on the S&P 500);
- Relatively low fees (0.35% total expense ratio);
- Diversification: JEPI is highly diversified across various sectors.
- In bull market, investors should expect a lower performance than the S&P 500 index. Issuing call options reduces volatility at the expense of higher performance in bull markets;
Expected investment outcome with covered call ETFs
In a robust bull market, where the price of the underlying stock rises above the strike price plus the option premium, the covered call writer will underperform.
Due to earning the option premium, the covered call writer can normally anticipate to outperform merely holding the stock in flat, decreasing, and mildly rising markets.
|Covered call strategy|
|Bull Market||lags in terms of |
|Modest Bull Market||Outperforms the index|
|Volatile market |
(frequent ups and downs)
|Outperforms the index|
|Beat market||Outperforms the index|
Why covered call ETFs are popular?
Covered call ETFs are very popular with American and Canadian investors. Two reasons push investors towards covered call ETFs:
- High dividend yield: thanks to the premiums earned when writing call options, the manager under certain conditions can earn premiums and enhance distributions;
- Low volatility. Writing a call option is a conservative strategy aimed at reducing volatility;
- Great for passive income: if you’re main objective is to achieve high dividend yields and build passive income, then covered call ETFs are a good option. But, remember the high dividend yield comes at a price which very low growth potential.
JEPI ETF Performance and Dividend yield
As of July 19th, 10.92% is the Dividend yield as per Yahoo Finance.
JEPI vs JEPQ
When considering whether JEPI and JEPQ (JPMorgan Nasdaq Equity Premium Income) ETFs are good investments, it’s essential to understand the key differences between the two.
JEPI, an ETF focused on issuing call options, offers several advantages that might appeal to certain investors. Firstly, it boasts an attractive yield derived from the money earned through call option writing. Moreover, JEPI exhibits lower volatility compared to investing directly in an S&P 500 index ETF like SPY, making it a suitable option for conservative investors and income seekers.
Another positive aspect of JEPI is its ability to capitalize on high volatility, which often translates to increased premiums for the fund. Additionally, investors can save valuable time and effort by avoiding the need to personally write call options on the S&P 500, as JEPI handles this strategy on their behalf. Furthermore, with relatively low fees of 0.35% total expense ratio, JEPI presents a cost-effective investment choice. The ETF’s diversification across various sectors adds another layer of appeal, spreading risk across different industries.
However, JEPI does have some drawbacks that potential investors should consider. In bull markets, it is expected to underperform the S&P 500 index due to the call option writing strategy, which reduces volatility but also limits its performance during bullish periods.
On the other hand, the JEPQ ETF, focused on writing call options on the NASDAQ 100, offers similar benefits to JEPI. It provides an attractive yield from call option writing and boasts lower volatility compared to a NASDAQ 100 ETF like QQQ, appealing to conservative investors and income seekers.
However, JEPQ has some significant negatives that investors need to be aware of. It tends to perform poorly during bullish market conditions, as the covered call strategy curtails the upside potential of the NASDAQ 100. Additionally, the covered call strategy becomes less effective in unpredictable markets, which could impact the ETF’s overall performance.
Furthermore, JEPQ’s lack of diversification is a notable concern, with a heavy concentration in tech firms dominating the fund. This lack of diversification exposes investors to higher risks compared to a more balanced investment approach.
Ultimately, whether JEPI or JEPQ is a good investment depends on individual investor preferences, risk tolerance, and market outlook. JEPI’s lower volatility and diversification across sectors could be attractive to those seeking stability and income, while JEPQ’s focus on the NASDAQ 100 may appeal to tech-focused investors. It is crucial for investors to conduct thorough research, consider their financial goals, and consult with a financial advisor to make informed investment decisions.
JEPI ETF Holdings
Top 10 Holdings
|HERSHEY CO/THE COMMON||1.62%|
|UNITEDHEALTH GROUP INC||1.62%|
|EXXON MOBIL CORP COMMON||1.60%|
|BRISTOL-MYERS SQUIBB CO||1.58%|
|ABBVIE INC COMMON STOCK||1.55%|
|PEPSICO INC COMMON STOCK||1.51%|
|COCA-COLA CO/THE COMMON||1.47%|
|ELI LILLY & CO COMMON||1.45%|
JEPI sector Exposure
JEPI Dividend Schedule