JPMorgan’s High-Yield JEPI ETF – 5 Reasons Passive Income Investors Love It

With investors worrying about a “Black Monday” and an upcoming recession, now is the best time to diversify your portfolio and look for ways to generate passive income. A high-yield Exchange Traded Fund can be an ideal choice for those who expect the market to trade sideways for the coming months. The ETF will not only help build a diversified portfolio of blue-chip stocks but will also ensure that they maintain high yields even if the market doesn’t appreciate much. JPMorgan is known for several ETFs that can generate passive income for investors and one such ETF is the J.P. Morgan Equity Premium Income ETF (NYSEARCA:JEPI).

What is JEPI?

JPMorgan Equity Premium Income ETF offers a monthly payout and invests in 130 stocks. The fund invests in S&P 500 stocks and is a covered call ETF. They do not work like traditional ETFs. Instead, the fund will sell call options on an index and generate a premium through it. It will combine equity and call option exposure to generate premiums and steady dividends. The fund enjoys a dividend yield of 7.5% and has soared 14% in the past five years. With JEPI, investors get regular monthly returns and a portfolio of elite names. It has an NAV of $52.14 and is down 9.31% year-to-date. However, if you are someone who enjoys monthly passive income, this fund could be your best choice. 

The fund holding consists of:

• Information Technology: 13.9%
• Financials: 13.4%
• Healthcare: 12.3%
• Industrials: 12.1%

Its biggest holdings include Visa Inc., Progressive Corp, Mastercard Inc., and The Southern Company. It also owns some of the Magnificent Seven which include Microsoft, Nvidia, and Amazon. Here are five compelling reasons for passive income investors to love this ETF. 

Solid track record

If you are looking for an ETF with a strong track record and low volatility, JEPI has proved its worth time and again. The fund has performed better (-9.31%) than the S&P 500 (-13.54%) and Nasdaq 100 (-19.15%) since the start of the year. Despite being in the red, the fund has managed to stay afloat and investors should consider that the current market sentiment is filled with volatility. This is when a high-yield fund like JEPI will make all the difference to your portfolio. In a nutshell, this fund will deliver steady returns at low volatility, no matter the market movement. 

Steady income for investors 

JEPI has managed to deliver steady returns even in times of market volatility. Since the income is flowing from premiums instead of stock dividends, it has been highly reliable. The covered call ETF will provide yield and income which is slightly higher than that offered by traditional ETFs.

Although the yield will fluctuate based on interest rate changes or market volatility, it still ensures a steady payout in the range of 5% to 8%. It has generated a 12.41% average annual return since its launch in 2020. The yield is much higher than traditional dividend ETFs and treasury bills.

Ideal blend of income and growth 

As against the common notion, the JPMorgan Equity Premium Income fund is not constructed based on the dividend yield. Instead, its monthly dividend income comes from the premium of the stocks it holds. This sets it apart from the other ETFs that offer a high yield. It also ensures that the fund is not heavily focused on a certain sector and thus reduces the sector-specific risks.

Additionally, it is not a fund packed with top dividend-paying companies, so there is less risk of a low yield if the dividends are cut. Hence, this ETF is an ideal blend of income and capital appreciation. It will offer exposure to stocks without the risk of relying solely on the dividend yield. 

Low volatility

Since JEPI holds large cap stocks, they have low risk and favorable return characteristics. This enables them to achieve higher returns at low volatility. In addition, active management also makes a significant difference when it comes to the risk return ratio.

Low cost

JEPI has a low expense ratio of 0.35% which is considered favorable for an actively managed fund. This also means that you’ll only be paying a small amount from your returns as fees. While its NAV may not increase consistently this year, the fund will ensure a high yield on a monthly basis even if the market is down. 

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