JEPQ: Enjoy The Fruits Of Both Growth And Income

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Generally speaking, investing successful growth-focused opportunities offers nan imaginable for superior appreciation. However, while waiting for higher prices, investors usually request to forgo recurring income/ dividends. The JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) is designed to harvester the opportunity for superior appreciation while distributing income: The finance nonsubjective of nan money is to activity existent income and superior appreciation by creating an actively managed portfolio of equity securities pinch vulnerability to nan Nasdaq-100 Index, arsenic good arsenic premia from equity-linked notes.

For reference, though JEPQ ETF shares person underperformed nan Nasdaq-100 (NDX) benchmark since inception by astir 7 percent points, accounting for nan fund's adjacent to 10% dividend output renders nan JEPQ scale a comparative outperformer.

JEPQ vs NDY stock capacity 12 months

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JPMorgan Nasdaq Equity Premium Income ETF

The JPMorgan Nasdaq Equity Premium Income ETF was launched 3rd May, 2022 and targets a combination of sustainable superior appreciation and precocious income output by trading equity linked notes, specified arsenic telephone options, connected blue-chip maturation companies. Or arsenic communicated done nan ETF's prospectus:

The finance nonsubjective of nan Fund is to activity existent income while maintaining prospects for superior appreciation. The Fund seeks to execute this nonsubjective by (1) creating an actively managed portfolio of equity securities comprised importantly of those included successful nan Fund’s superior benchmark, nan Nasdaq-100 Index® (the Benchmark), and (2) done equity-linked notes (ELNs), trading telephone options pinch vulnerability to nan Benchmark.

With that framework of reference, nan money invests astatine slightest 80% of its assets successful equity securities and seeks to supply monthly distributions astatine a unchangeable level done nan postulation of volatility premia.

One use of nan fund‘s strategy is to supply investors pinch capacity that captures astir of nan returns associated pinch nan Nasdaq-100, while exposing investors to little volatility than nan benchmark done nan distribution of income.

Growth-Focused Portfolio Allocation

As nan sanction JPMorgan's Nasdaq Equity Premium Income ETF implies, nan JEPQ ETF invests successful Nasdaq-listed equities--with nan 10 awesome azygous banal holdings arsenic below.

JEPQ holdings

JEPQ Prospectus

For reference, I person a 'Strong Buy' standing connected securities marked acheronian green, a 'Buy' connected securities marked green, a 'Hold' connected securities marked yellow, and a 'Sell' connected securities marked reddish respectively. Non-colored securities are not covered.

Admittedly, I person a 'Sell' standing connected Amazon (AMZN) arsenic good arsenic a 'Hold' proposal connected Nvidia (NVDA), Microsoft (MSFT) and Apple (AAPL). However, successful operation pinch a call-overwrite strategy (as discussed successful nan adjacent section), I americium little concerned astir nan imaginable downside.

As of February 18th, nan JEPQ money claims a beta arsenic debased arsenic 0.72 and a P/E of somewhat much than x22. Moreover, JPMorgan's Nasdaq Equity Premium Income ETF reports that nan fund's 1-year modular deviation is 22.4%, versus 30.5% for nan Nasdaq 100 benchmark.

JEPQ cardinal metrics

JEPQ Prospectus

Call Overwrite Makes Perfect Sense

Perhaps nan astir charismatic worth proposition for JEPQ is anchored connected nan fund’s precocious income yield--equal to 9.96% for nan trailing 12 months. The JPMorgan Nasdaq Equity Premium Income ETF invests successful Nasdaq-listed maturation stocks, while besides selectively trading out-of-the-money telephone options connected nan underlying securities to make an further monthly income. With that framework of reference, it is worthy pointing retired that location is no/ small consequence associated pinch trading telephone options connected maturation stocks, because nan ETF's underlying holdings supply nonstop coverage. The main consequence for JEPQ investors is that, if nan ETF’s portfolio holdings were to emergence sharply, investors would suffer retired connected immoderate of nan delta (above strike).

Needless to say, this call-overwrite strategy is peculiarly advantageous successful a high-volatility marketplace environment. And arsenic markets proceed waste and acquisition successful specified volatile environment, nan money has been capable to present charismatic monthly pay-outs successful 2022, consistently approaching 1% of plus value.

JEPQ - dividend yield

JEPQ Prospectus


There are 2 awesome risks that I would for illustration to item for JEPQ investors. First, investors should see that nan JPMorgan Nasdaq Equity Premium Income ETF remains an equity portfolio. Accordingly, moreover though nan plus allocation is somewhat defensive, fixed nan call-overwrite strategy, nan fund's capacity mightiness not beryllium immune to a crisp repricing for equities. Second, nan JEPQ ETF is not perfect for investors who are looking for superior appreciation opportunities, moreover though nan fund's holdings are skewed towards maturation factors. The reasoning is simple: trading telephone options limits nan upside imaginable that mightiness beryllium realized successful a bull market. Accordingly, if bullish sentiment would return, specified a superior allocation strategy mostly underperforms benchmark strategies that do not waste telephone options connected portfolio holdings.


JPMorgan Nasdaq Equity Premium Income ETF is simply a 'Strong Buy', successful my opinion. Reflecting connected nan existent macro-environment, I reason that trading telephone options connected Nasdaq-listed maturation companies is poised to outperform equity-linked alternatives, arsenic good arsenic fixed-income securities specified arsenic US-treasuries, which person supply a little income output and are expected to suffer astir 1-2% of worth owed to inflation.

Moreover, fixed that implied volatility premia for astir maturation equities are rich | and upside constricted (my opinion), nan further income from penning telephone opinions connected JEPQ's plus guidelines is highly attractive. Finally, investors whitethorn besides find it appealing that nan ETF has comparatively debased costs, pinch nett expenses that tin beryllium arsenic debased arsenic 0.35% annually.

This article was written by

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5y acquisition arsenic an finance expert for a awesome BB-Bank. Currently moving towards nan CFA charter. Passion for risk-assets (Growth, Contrarian, Emerging Market) ex-colleague and adjacent friend of Investor Express

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: not financial advise

Editor: Naga

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