If you happen to just like the JPMorgan Fairness Premium Earnings ETF (NYSEARCA:JEPI) you then’re going to like its 11.9%-yielding counterpart, the JPMorgan Nasdaq Fairness Premium Earnings ETF (NASDAQ:JEPQ). What’s the distinction between JEPI and JEPQ, and is JEPQ a powerful selection for traders to construct their portfolios round? Let’s discover out.
What’s the Distinction Between JEPI and JEPQ?
JEPI is JPMorgan’s well-known and much-discussed covered-call ETF that yields about 10.5% and pays a month-to-month dividend that has taken the market by storm since its 2020 launch. With $10 billion in internet inflows this yr as of late June, it’s now the market’s hottest actively-managed ETF.
JEPQ takes the same method to JEPI, promoting one-month, out-of-the-money name choices to generate earnings and paying a month-to-month dividend to its holders (traders ought to be conscious that these distribution funds can fluctuate from month to month).
JEPQ sports activities a good bigger dividend yield than JEPI at 11.9%. The ETF is way smaller than JEPI, with about $4 billion in property below administration in comparison with $28 billion for JEPI. JEPQ can also be newer than JEPI, having launched in Might of 2022.
The important thing distinction is that whereas JEPI invests in large-cap U.S. shares and seeks to ship a good portion of the full returns of the S&P 500 with much less volatility, JEPQ takes the same method however as a substitute makes use of the Nasdaq 100 as its funding universe.
Like JEPI, JEPQ sports activities a 0.35% expense ratio, which is increased than that of most of the in style passively-managed index funds however isn’t dangerous for an actively-managed fund.
Lastly, notice that JEPI and JEPQ are run by the identical crew of portfolio managers.
JEPQ’s “Magnificent” Portfolio
JEPQ holds 81 shares, and its high 10 holdings account for 58.7% of property. Due to this fact, JEPQ is rather more concentrated than JEPI, the place the highest 10 holdings make up simply 17.5% of property. As an illustration, its high two holdings, Microsoft and Apple, mix to make up nearly 25% of the fund.
Beneath is an summary of JEPQ’s high 10 holdings utilizing TipRanks’ holdings software.
As a result of it’s investing in Nasdaq shares, JEPQ’s portfolio is rather more tech-centric than JEPI’s. The much-discussed “magnificent seven” (the aforementioned Microsoft and Apple, plus Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla), which have pushed a lot of the general market’s features this yr, are all current inside JEPQ’s high 10 holdings and mix to comprise roughly half of the fund.
Past the magnificent seven, the remainder of the fund consists of many different large-cap development shares, together with loads of software program names and semiconductor firms. There are additionally positions in a couple of Nasdaq-listed shopper staple shares, akin to Costco, Pepsico, and Mondelez.
Is JEPQ Inventory a Purchase, Based on Analysts?
Turning to Wall Road, JEPQ has a Reasonable Purchase consensus score, as 70.6% of analyst scores are Buys, 26.55% are Holds, and a pair of.85% are Sells. At $51.08, the typical JEPQ inventory worth goal implies ~7% upside potential.
JEPQ’s Efficiency
JEPQ solely launched in Might of 2022, so it doesn’t but have an extended observe document that potential traders can consider. Nonetheless, it has a powerful complete return of 24.9% year-to-date and 16.4% over the previous yr.
No Free Lunch
As is the case with JEPI, traders ought to contemplate the truth that to realize this excessive yield, some sacrifices have to be made. By promoting coated calls to generate earnings, JEPQ possible forgoes some upside when the shares it holds are surging. You’ll be able to see this dynamic taking part in out in actual time this yr, utilizing a fundamental Nasdaq 100 ETF just like the Invesco QQQ Belief ETF (NASDAQ:QQQ) as an easily-investable proxy for the Nasdaq.
QQQ has a complete return of 40.4% year-to-date, whereas JEPQ’s complete return for 2023 is 24.9%, outperforming JEPQ by a large margin. QQQ can also be outperforming JEPQ over the previous yr, with a complete return of 26.4% versus JEPQ’s complete return of 16.4%.
A complete return of 24.9% simply over midway via the yr isn’t one thing many traders will complain about, however it must be stated that it lags the full return of a easy Nasdaq ETF like QQQ by a big margin. The identical could be stated for the trailing-12 month returns. We don’t know if this hole will persist over time, however for now, it appears honest to say that JEPQ is underperforming the Nasdaq throughout a bull market.
In equity to JEPQ, a part of its technique is to mitigate volatility and draw back, so it’s additionally potential that we may see JEPQ outperform vanilla Nasdaq ETFs like QQQ in the course of the subsequent bear market. The tech sector and the Nasdaq have been in a bear market final yr, however JEPQ solely launched in Might of 2022, almost halfway via the yr, so we don’t but understand how it might carry out throughout a full market cycle.
However, JEPQ’s counterpart, JEPI, held up higher than the broader market final yr, so it does appear possible that JEPQ would be capable to do the identical.
Nonetheless, this is perhaps one thing many traders are okay with. There are a lot of traders on the market who just like the draw back safety that JEPQ gives and are okay with forgoing some capital appreciation as a way to obtain this. Moreover, some income-oriented traders are glad with the thought of a double-digit dividend yield and a month-to-month dividend fee that they will depend on.
Investor Takeaway
For these causes, whether or not an funding in an ETF like JEPQ fits your portfolio is dependent upon your particular person preferences and funding targets. As a result of it provides much less publicity to the long-term upside of the market, I wouldn’t make JEPQ my solely holding or the biggest piece of my portfolio.
Nonetheless, I’m intrigued by the thought of including the facility and ingenuity of most of the world’s high know-how firms, like Microsoft, Nvidia, and Tesla, to my portfolio with an ETF that additionally comes with an 11.9% dividend yield.
Due to this mixture, JEPQ can slot in properly as one part of a well-rounded portfolio. JPMorgan explains that JEPQ’s function in a portfolio is so as to add earnings and supply diversified fairness publicity with decrease danger whereas additionally “sustaining prospects for capital appreciation,” and this can be a smart approach to have a look at a automobile like JEPQ.
Whereas it won’t surpass the Nasdaq by way of complete returns, viewing it as a singular asset that substitutes the mounted earnings part in a portfolio may very well be worthwhile. This asset can generate earnings and presumably provide some distinctive publicity in case of a market downturn, making it a beautiful possibility.
Disclosure