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JEPQ: The Risks Outweigh The Rewards With This ETF

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Investing has go much analyzable for astir individuals complete nan past year. The marketplace has been much volatile, ostentation rates stay high, and liking rates proceed to emergence arsenic well. Dividend and income investors seeking ostentation adjusted returns person been forced to beryllium much imaginative for immoderate clip pinch liking rates having been historically debased for astir of nan past decade, but rates moving up steadily complete nan past respective years has besides analyzable nan investing environment.

One type of finance that has go progressively celebrated pinch income and dividend investors is simply a money that sells telephone options aliases speech traded notes to make further income. A caller money that seeks to connection investors double digit income returns per twelvemonth is nan JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ).

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This money uses a similar attack arsenic different ETFs that waste covered calls and speech linked notes to make further income. JEPQ is an actively managed money that chiefly sells speech linked notes against positions and indexes that this money owns, but besides sells options against indexes that this money does not wholly own.

JEPQ HAS a .35% disbursal ratio and $1.57 cardinal successful assets nether management. The money makes monthly payouts. Since nan fund's inception successful May of 2022 this money has paid retired $4.27, for a payout complaint of 10%. JEPQ is connected way to salary retired astir 13% successful yearly income from today's stock value of $42.75 for nan afloat year. This is an actively managed money tally by 3 individuals.

The holdings of this money are 48.12% successful exertion stocks, 16.24% user cyclicals, 15.3% successful communication, 6.74% successful wellness care, 6.24% successful user defensives, 3.37% successful industrials, 1.67% successful utilities, 1.46% successful financials, .46% successful existent estate, and .40% successful energy. The 4 largest holding of this money are Microsoft (MSFT), Apple (AAPL), Alphabet (GOOG), and Amazon (AMZN). JEPQ has 10.47% of nan fund's assets successful Microsoft, 9.56% successful Apple, 6.24% successful Alphabet, and 5.46% successful Amazon. These 4 companies dress up astir 32% of nan holdings of JEPQ.

JEPQ reserves nan correct to usage up to 20% of nan fund's rate to waste speech linked notes and options. The Fund sells nan speech linked notes to make further income this ETF payouts retired monthly. Exchange linked notes run akin telephone options, these instruments will alteration successful worth chiefly based connected nan volatility levels successful nan underlying investments these instruments are sold against, truthful nan monthly payouts of costs specified arsenic JEPQ tin beryllium volatile. Selling an speech linked statement against an finance you ain is akin to trading a covered call, you are trading immoderate of nan upside, and you are receiving income based chiefly connected nan volatility premium successful nan option. This money chiefly sells retired of nan retired money monthly telephone options, which are chiefly sold against nan costs underlying holdings. The monthly payouts of nan money since its inception person varied from $.34 to $.68 cents a share, they person averaged $47.4 cents per stock each month. Payments moving guardant are apt to beryllium astatine nan little extremity of nan caller scope since volatility levels successful nan marketplace were astatine elevated levels for overmuch of nan past year. The income this money pays retired is taxed astatine mean income rates.

The largest problem this money will has for much blimpish investors who are chiefly focused connected income aliases dividends are nan heightened volatility levels because of nan deficiency of diverseness of this ETF's holdings. This JP Morgan money has 32% of nan speech traded fund's assets successful 4 companies. The problem JEPQ faced was that this money wanted to beryllium an income based exertion fund, and location aren't galore ample headdress exertion companies that salary important dividends. JEPQ has been importantly than nan Nasdaq since nan fund's creation successful May,2022. JEPQ is down 15.61% since this ETF was started astir a twelvemonth ago, while nan Nasdaq is down 8.63% during nan aforesaid clip period, and nan S&P 500 is ain 5.14% complete that 9 period time.

ChartData by YCharts

Diversity isn't conscionable based connected which different sectors you put in, it besides matters what percent of nan fund's holdings are invested successful individual companies. This money has besides been much volatile than different income based exchanged traded costs specified arsenic nan JPMorgan Equity Premium ETF (JEPI) because this money is little divers than that ETF. JEPI for is down only 7.48% since May of 2022, while JEPQ is down 15.61% during nan aforesaid clip period. JEPI is overmuch amended diversified money than JEPQ since nan JEPI only invests 16.26% aliases little of nan fund's assets successful immoderate 1 assemblage of nan marketplace and nan fund's largest holding is conscionable 1.69% of nan wide fund. JEPQ has been somewhat little volatile than different income focused speech traded costs that waste covered calls specified arsenic RYLD and QYLD, but this ETF has still been importantly much volatile than nan broader indexes and costs specified arsenic JEPI.

JEPQ has already paid retired $4.27 successful dividends since nan money was started successful May of 2022, and this money will apt proceed to connection substantive income moving forward. Investors seeking income who are comfortable pinch supra mean risks will apt find this money appealing. Still, galore accepted individuals seeking unchangeable dividends will apt still find much blimpish ETFs specified arsenic JEPI much appealing. JEPQ besides takes much consequence than different income based costs that usage akin strategies focused connected trading options to make income specified arsenic RYLD and QYLD, since those costs are much diversified. While JEPQ ETF will apt beryllium appealing to immoderate much fierce investors, astir seeking unchangeable income and dividends tin find amended worth successful different investments.

This article was written by

Skeptical12 floor plan picture

I americium an avid investor and trader who has worked successful law, politics, and business.

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.

Editor: Naga



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