Before you consider the JEPQ ETF. Today, wherever this message finds you, please know God will see you through it.
With that, I wanted to take a closer look at an ETF I’ve had a great experience with in the year I’ve owned it. I haven’t seen the growth potential I’d hoped but the higher income has more than sufficed while I wait for QQQ or JEPQ in this case, to continue making new highs.
If you’re interested to learn more directly from JPMorgan’s Website, have a look here for the prospectus, summary prospectus, and several other relevant fund metrics. If you want to see how JEPQ is behaving in my own portfolio, have a look at the Unqualified Portfolio here.
Post Agenda
- Overview
- Investment Strategy
- Expenses
- JEPQ ETF Pros & Cons
- JEPQ Investment Returns
- 3-Year Performance Data
JEPQ Overview
The JPMorgan Equity Premium Income ETF or JEPQ is an actively traded fund and invests in large-cap companies from the Nasdaq 100 index. JEPQ uses a covered call strategy to generate a higher level of income at almost 10% per year, making it very attractive for income seeking investors. Currently, the fund has approximately $21 billion in assets under management with an expense ratio at a reasonable 0.35% given the funds potential.
JEPQ Investment Strategy
JPMorgan uses a popular options strategy combining equity investments with an out of the money covered call. This approach accomplishes the goal of generating an additional income without completely ignoring capital appreciation. Short calls are entered above the current market price but at that point upside appreciation is forfeited in return for the income that is received.
I do prefer this strategy to other funds that chose to sell at the money calls. Those funds may return a higher premium but do so at the expense of any capital appreciation. I just don’t care for a fund that participates in all of the downside and none of the upside.
In any case, JEPQ uses a more conservative options approach and has performed quite well in my opinion. We’ll take a closer look in another section but in the few days of 2025, JEPQ is trading in lockstep with QQQM, the Nasdaq 100 ETF.
Expense Ratio
As mentioned previously, the JEPQ ETF has a respectable expense ratio of 0.35%. For comparison, the SPY ETF has an expense ratio of 0.09% so yes JEPQ is higher but not egregiously so. Making the expense ratio more than competitive for an actively traded fund. SPY maintains a lower expense ratio primarily because of it’s “hands-off” or “passive” approach.
There are no loading fees to speak of and like most ETF’s, no other hidden fees. Every cost is wrapped into that 0.35% expense ratio and at $35 for every $10k invested, it’s more than manageable. It’s likely, we couldn’t replicate JEPQ’s performance for any less in fees if we wanted to go about structuring a similar strategy.
JEPQ ETF Key Benefits
- Well above average dividend yield at approximately 9.7%
- Lower volatility compared to the Nasdaq-100 Index
- Diversified investment into Large-Cap Technology stocks
JEPQ ETF Key Detractors
- Capped upside due to the covered call strategy
- Higher concentration risk to Technology stocks
- Additional complexity from the options strategy
JEPQ ETF Investment Returns
Since inception JEPQ has been providing investors with a great return, including appreciation of about 12% in the past year. Additionally, as of today, JEPQ has captured about 75% of the Nasdaq-100’s upside while simultaneously generating a consistent stream of income. This combination of growth and income has attracted plenty of investors to JEPQ at this relatively early stage and will likely be a deciding factor for many other investors in the years to come.
3 Year Performance Results
Back Test Criteria:
- $5,000 Initial Investment
- $100 Monthly Contribution
- Start Date – 1/14/22
Assuming a $5,000 initial investment and $100 monthly contributions starting January 14th, 2022 an investment into JEPQ would have become approximately $17,000 throughout the period. The total capital contribution across the 36 month period would be $8,600 for a total return of $8,400 or almost 100% in total return.
Doubling an investment in just a little under 3 years is no easy task. JEPQ has become a star performer within the options ETF space and should these metrics continue, will be well into the future also.
Final Thoughts
JPMorgan has found a winning formula with their JEPQ ETF. By combining the ability to capture upside JEPQ separates itself from other high yielding funds. Many of which not only fail to grow but actually have a decaying share price as a byproduct of their particular strategies. Not exactly a recipe for longer term success.
Still, as it is with any investment, there are good performers and not so good performers. In my opinion JEPQ falls into the better performers camp having virtually doubled an investment over the past 3 years.
At a reasonable expense ratio, approximately 75% of the Nasdaq’s growth potential, and about a 10% yield, JEPQ offers plenty for investors to like. Add to that any yield increases that may result from higher volatility in the years ahead and, I think, there are plenty of reasons to consider this high yielding ETF.
Let me know in the comments what you think of the JEPQ ETF or if another ETF has performed better. I know everyone would like to review.
Until the next post.
God bless,
Jeff
