About How does jepi work
This page contains links to our partners. RBD may be compensated when a link is clicked. Read disclosures. This article compares JEPI vs JEPQ — J.P. Morgan’s Equity Premium Income ETF vs. J.P. Morgan’s Nasdaq Equity Premium Income ETF. Both are actively managed ETFs popular with dividend investors and retirees looking to earn yields above total market ETFs such as VTI and popular dividend ETFs.The funds aim to seek current dividend income while maintaining the prospects for price appreciation.JEPI and JEPQ are covered call ETFs. The funds hold undervalued stocks in their respective benchmark indexes and sell covered calls (a basic and low-risk option strategy) against the benchmark indexes to generate income for investors via equity-linked notes (ELNs). It’s a bit confusing; we’ll dig in more below. The funds deploy a nearly identical strategy. The main difference between the funds is their benchmark indexes. JEPI holds stocks in Standard & Poor’s 500 Total Return Index (S&P 500 Index). JEPQ holds stocks in the Nasdaq-100 Index. Each fund pays a monthly dividend with annual yields (~10%+) significantly higher than broad index funds tied to the market indexes. Therefore, investors should consider owning JEPI and JEPQ in tax-advantaged accounts such as a traditional or Roth IRA to avoid dividend taxation. Table of ContentsBottom Line Upfront (BLUF)JEPI vs JEPQ ComparisonSide-by-SideBenchmark IndexesPerformance Chart (Excluding Dividends)Dividend Payout SchedulesTop Ten HoldingsWhat are Equity-Linked Notes?How do Covered Calls work in JEPI and JEPQ?Alternative FundsBest Broker to Buy JEPI or JEPQConclusionAdditional ResourcesBottom Line Upfront (BLUF)Before I get into the details of JEPI vs JEPQ, it’s essential to keep the following in mind:The funds deploy the same strategy. However, the benchmark indexes vary. Each fund holds many of the largest U.S. blue-chip companies.JEPI has a broader pool of stocks from which to choose. JEPQ is Nasdaq-only and has a high percentage of assets in the top 10 holdings (concentration risk). Covered call ETFs are a relatively new category. JEPI is older, more established, and has more assets under management than JEPQ. JEPQ has outperformed JEPI since JEPQ’s inception (see chart below for the latest). But both funds are immature. Past performance is not indicative of future returns.Both ETFs are available to purchase from any online broker. I prefer M1 Finance.JEPI and JEPQ are untested in severe bear markets. It is unclear how they will perform when stocks fall dramatically. Please note that both ETFs update their prospectuses regularly. The
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Amount of the dividend. Click here to build a chart to show total returns.Past performance is not indicative of future results. Either fund is suitable as an income-producing asset in your portfolio. See the table above for one and three-year average annual performance records. As both funds age, we’ll update the table and chart to reflect more data. Dividend Payout SchedulesBoth JEPI and JEPQ pay monthly dividends. Investors receive monthly dividend payments on the 1st, 2nd, or 3rd of the month, depending on where the weekend falls. The only exception is in December, when investors receive two dividend payments (approximately the 1st and 29th).Presumably, the second December payment being completed in the current year helps to simplify and provide more time for tax reporting for J.P. Morgan. Top Ten HoldingsHere are the top ten holdings for each fund. Visit the links at the beginning of the article for the most updated lists. Read more: JEPI Top 50 Holdings, JEPQ Top 50 HoldingsWhat are Equity-Linked Notes?Since the funds do not own the indexes directly (e.g., SPY or QQQ), managers use equity-linked notes (ELNs) to generate similar returns to a covered call strategy against the indexes. The income derived from the covered call strategy is paid to investors as a monthly dividend.The funds are each comprised of approximately 80% stocks and 20% ELNs. The combined strategy of holding undervalued stocks and selling call options enables high monthly dividend income while maintaining the prospects for capital appreciation. JEPI and JEPQ have fewer stock holdings than their respective benchmark indexes. Managers deploy proprietary research to select attractively valued stocks. How do Covered Calls work in JEPI and JEPQ?Writing (or selling) a covered call is a basic and low-risk option strategy whereby investors/fund managers sell a call option against a portfolio holding.A call option is a right to buy the underlying security at a set price (the strike) on the expiration date. JEPI and JEPQ managers write short-dated calls (set to expire within a month or so) to generate income and lower overall volatility. When the fund managers write the calls (sell to another buyer), they collect a premium (payment) used to pay ETF investors as dividends. If the underlying asset rises above the strike price by the expiration date, the call buyer will exercise the option to buy the asset at a lower price than the current price. If the underlying asset falls in
