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.
| Fund Assets |
| $14.36bn |
| Number of Holdings |
| 123 |
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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?
Positives
- 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.
Negatives
- 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 performance |
| 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 May 10th, 11.31% is the Dividend yield as per Seeking Alpha.
| 1 Month | 3 Months | YTD | 1 Year | |
| Trailing returns | 1.20% | 2.22% | 3.57% | 8.20% |
JEPI ETF Holdings
Top 10 Holdings
| Name | Weight % |
| PROGRESSIVE CORP/THE | 1.63% |
| 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% |
| HONEYWELL INTERNATIONAL | 1.43% |
JEPI sector Exposure
| Name | Weight % |
| Communication Services | 3.8% |
| Consumer Discretionary | 5.1% |
| Consumer Staples | 11.9% |
| Energy | 2.8% |
| Financials | 12.2% |
| Health Care | 12.5% |
| Industrials | 12.6% |
| Information Technology | 11.1% |
| Materials | 3.2% |
| N/A | 0.0% |
| Other | 13.9% |
| Real Estate | 2.6% |
| Utilities | 7.7% |
JEPI Dividend Schedule
| Ex-Div Date | Pay Date | Frequency | Amount |
|---|---|---|---|
| 5/1/2023 | 5/4/2023 | Monthly | 0.4246 |
| 4/3/2023 | 4/6/2023 | Monthly | 0.4451 |
| 3/1/2023 | 3/6/2023 | Monthly | 0.4112 |
| 2/1/2023 | 2/6/2023 | Monthly | 0.4439 |