JEPI: Forget Capital Gains And Focus On High Income

Stuart Allsopp profile picture
Stuart Allsopp
4.01K Followers

Summary

  • The JPMorgan Equity Premium Income ETF offers investors exposure to U.S. large cap stocks but with a significantly higher dividend yield, which currently sits at almost 11%.
  • This high yield is achieved primarily through investments in equity-linked notes which generate income from call options premiums. It also invests in lower volatility stocks relative to the S&P 500.
  • While this strategy means that the ETF will likely underperform in a strong S&P 500 bull market, a flat or declining market should see the JEPI strongly outperform.
  • The use of derivatives and the limited track record suggest caution is warranted, but from a risk-reward perspective the ETF looks set to outperform, particularly for U.S. focused investors.

Wooden blocks with percentage sign and arrow up, financial growth, interest rate and mortgage rate increase, inflation concept

ThitareeSarmkasat/iStock via Getty Images

The JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) offers investors exposure to U.S. large cap stocks but with a significantly higher dividend yield which is achieved largely by generating option premiums, and currently sits at almost 11%. For U.S. focused

JEPI vs XYLD return

JEPI Vs XYLD, Total Return (Bloomberg)

JEPI ETF top industry holdings

JEPI Top Industry Holdings (Bloomberg)

XYLD top industry holdings

XYLD Top Industry Holdings (Bloomberg)

S&P 500 valuation vs subsequent returns

S&P500 Valuation Vs Subsequent Returns (Bloomberg)

This article was written by

Stuart Allsopp profile picture
4.01K Followers
I am a full-time investor and owner of Icon Economics - a macro research company focussed on providing contrarian investment ideas across FX, Equities, and Fixed Income based on Austrian economic theory. Formerly Head of Financial Markets at Fitch Solutions, I have 15 years of experience investing and analysing Asian and Global markets.

Disclosure: I/we have a beneficial short position in the shares of SPX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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