The JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI) was one of the unquestioned winners of the 2022 bear market. While the Vanguard S&P 500 ETF was losing more than 18% that year, JEPI fell only 3%. Its focus on low volatility helped it to avoid a lot of the broader market’s downside risk, but the high yield, which often times was 10% or higher, was the bigger draw.
Today’s environment looks like a similar setup. Low volatility stocks are doing well again. Covered call income may be more stable than bond income. In short, it’s time to reconsider the JPMorgan Equity Premium Income ETF again.
Image source: Getty Images.
The market rotation away from tech stocks has created opportunities for traditional high-yield covered call strategies.
The JPMorgan Equity Premium Income ETF (JEPI 0.47%) was one of the unquestioned winners of the 2022 bear market. While the Vanguard S&P 500 ETF was losing more than 18% that year, JEPI fell only 3%. Its focus on low volatility helped it to avoid a lot of the broader market’s downside risk, but the high yield, which often times was 10% or higher, was the bigger draw.
Today’s environment looks like a similar setup. Low volatility stocks are doing well again. Covered call income may be more stable than bond income. In short, it’s time to reconsider the JPMorgan Equity Premium Income ETF again.
Image source: Getty Images.
How JEPI generates its premium income
JEPI uses a defensively tilted portfolio of low volatility stocks as its foundation and then writes out-of-the-money covered calls on the S&P 500 for income. The fund’s yield can fluctuate with market conditions and volatility, but it’s often 8% or higher.
The monthly income component is the big selling point. JEPI offers predictable income without taking excessive equity risk. The low beta portfolio and covered call overlay mean it has the potential to outperform in challenging markets, but usually underperforms in bull markets.
The fascination in the ETF space right now is single-stock covered call ETFs that can generate annualized yields of 50% or more. Those are flashy and exciting, but the strategy put forth by the JPMorgan Equity Premium Income ETF makes so much more sense.
By using S&P 500 call options, investors mitigate much of the risk associated with taking a position in volatile equities. The income is often more steady and predictable. Plus, building that covered call strategy on top of a defensive equity portfolio keeps the two sources of return aligned.
Covered call strategies should, in my opinion, be built around a more conservative approach. They usually forgo share price upside to capture the high yield, but the durability of the income component should be the more important factor. The fund’s overall strategy checks those boxes.
JPMorgan Equity Premium Income ETF
Today’s Change
(-0.47%) $-0.27
Current Price
$57.32
JEPI fund snapshot
| Metric | JEPI |
|---|---|
| Expense ratio | 0.35% |
| Assets under management | $45 billion |
| Dividend yield | 8.5% |
| 1-year total return | 7.9% |
| 3-year average annual return | 9.6% |
| 5-year average annual return | 8.3% |
| Since inception average annual return | 11.2% |
| Distribution frequency | Monthly |
Data source: J.P. Morgan Asset Management.
This ETF has taken a back seat during the current artificial intelligence-driven bull market. It’s lagged the S&P 500 by a wide margin, as would be expected, but it’s still drawn $19 billion in net inflows over the past three years. Investors still have this product on their radars.
Now that the market is moving back in its favor again, the JPMorgan Equity Premium Income ETF looks like a strong option for income seekers once more.
