Exploring Investment Strategies for the JPMorgan Equity Premium Income Fund ETF (JEPI)

Uncovering Strategies for Investing in JPMorgan's Equity Premium Income Fund (JEPI)

In 2022, a difficult year for both stocks and bonds, some of the top performing Exchange Traded Funds (ETFs) managed to navigate the storm effectively. Among them, the JPMorgan Equity Premium Income ETF (JEPI), with a ticker symbol of 0.97%, stood out.

JEPI has gained the interest of numerous investors due to its substantial assets under management, exceeding $36 billion. The ETF is particularly appealing for its defensive income-oriented strategy, offering high yield and regular monthly distributions, making it a good choice during uncertain market phases.

However, investing in JEPI is not without its complexities and potential drawbacks. If you're considering adding JEPI to your portfolio, especially as a beginning investor, it's crucial to understand its strategy, holdings, and the risks vs. potential returns it presents.

What is it?

What is JPMorgan Equity Premium Income ETF (JEPI)

JEPI operates as an actively managed derivative income fund. Although it may sound complicated, it's relatively straightforward when explained.

JEPI differs from passive ETFs that mirror indexes such as the S&P 500. Instead, JEPI selects individual stocks from the S&P 500, focusing on potentially undervalued companies with lower volatility and favorable Environmental, Social, and Governance (ESG) criteria.

The second component of JEPI's strategy involves derivatives, specifically equity-linked notes (ELNs). These financial instruments enable JEPI to engage in a strategy similar to selling out-of-the-money covered calls against the S&P 500. This strategy aims to provide investors with a dual benefit: regular income through the premiums collected from these options and potential price appreciation from the underlying stocks.

As a result, while JEPI may not match the S&P 500 in terms of price appreciation, it offers a trade-off of potentially lower volatility and higher, more consistent income.

Exchange-Traded Fund (ETF)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once. ## How to invest

How to buy JPMorgan Equity Premium Income ETF (JEPI)

Step-by-step guide on purchasing JEPI:

Log into your brokerage account: Open your trading app and make sure you're logged into the brokerage account where you manage your investments.
Search for the ETF: In the search bar, enter "JEPI" and select "stock" instead of "options."
Determine your investment: Reflect on your investment objectives and decide how much of your portfolio you'd like to allocate to JEPI.
Choose order type: Opt for a market order to purchase at the prevailing market price or a limit order to set the maximum price you're willing to pay per share.
Submit your order: Double-check all the details, then confirm and submit your purchase order for JEPI.
Review your purchase: Once your order is executed, review your portfolio to ensure it aligns with your investment strategy and was completed as expected.

Caution: Be mindful to select the USD version of JEPI listed on the NYSE Arca (NYSEARCA). If you select the Canadian version trading on the Toronto Stock Exchange (TSX), you'll be purchasing CAD-denominated shares.

Top holdings

Top holdings in JPMorgan Equity Premium Income ETF (JEPI)

As of November 2024, the following stocks constituted JEPI's top holdings:

Nvidia (NVDA) - 3.08%
Progressive (PGR) - 0.11%
Trane Technologies (TT) - 0.06%
Amazon (AMZN) - 0.73%
ServiceNow (NOW) - 1.52%
Mastercard (MA) - 0.91%
AbbVie (ABBV) - 2.37%
Meta Platforms (META) - -1.73%
Southern Co. (SO) - 1.32%
Visa (V) - 0.9%

Keep in mind that JEPI's holdings frequently change due to its high portfolio turnover rate of 172%. This indicates that the fund's management actively trades a significant portion of its holdings throughout the year.

In terms of sector allocation, JEPI differs from the broader market, with significant investments in technology, financials, healthcare, and industrials, which are among the largest sectors represented in the ETF.

Should I invest?

Is JPMorgan Equity Premium Income ETF (JEPI) a good investment?

JEPI may be an attractive option for investors with a moderate risk appetite who prioritize immediate income over potential capital appreciation. This type of investor can especially benefit from JEPI's monthly distributions and its generally lower market volatility.

However, JEPI might not be the best fit for growth-oriented investors who emphasize capital gains. The ETF's low-volatility strategy and the use of covered calls through ELNs can limit upside potential, making it less appealing for those who don't need immediate income and prefer to reinvest earnings to compound growth.

Does it pay a dividend?

Does JPMorgan Equity Premium Income ETF (JEPI) distribute dividends?

JEPI distributes payments that differ from typical stock dividends. While JEPI's distributions are primarily derived from option premium income generated from its ELN-based covered call strategy, they also incorporate dividends obtained from its underlying stock holdings.

This implies that the distribution often includes a blend of qualified dividends, which are taxed at a lower rate, and income from the options strategy, which is taxed at your standard income rate. Consequently, it proves to be less tax-efficient if held outside of tax-advantaged accounts such as Roth IRAs.

The ETF's 30-day SEC yield is noteworthy, finishing at 7.75% towards the end of October 2024. Nevertheless, the actual dispensed amount can fluctuate significantly due to market instability, affecting the income generated from the ELNs. For example, the monthly per-share distributions in 2024 fluctuated between a high of $0.39984 in September and a low of $0.28949 in August.

Distributions are issued monthly, with the ex-dividend date typically taking place on the first trading day of the month, followed by payments a few days later.

NAV

Expense ratio

What is the JPMorgan Equity Premium Income ETF (JEPI) expense ratio?

JEPI has an expense ratio of 0.35%, equating to $35 yearly for every $10,000 invested. For a actively managed ETF that employs an advanced derivatives strategy to generate income, this fee is recognized as quite reasonable.

It's essential to take note that this fee is not paid personally but instead subtracted from the ETF's assets, which minimally decreases the fund's performance over time.

ETF Expense Ratio

20.22%

Annual fee as a percentage of assets that an Exchange-Traded Fund charges investors for management and operational costs. ## Historical performance

Historical performance of JPMorgan Equity Premium Income ETF (JEPI)

| JEPI | 1-Year | 3-Year || --- | --- | --- || NAV | 20.22% | 7.46% || Market | 20.21% | 7.44% |

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The bottom line

JEPI is a specialized ETF that has achieved its objectives of offering high monthly income and lower volatility.

However, it's imperative to remember that JEPI is intended for investors with specific needs -- those who prioritize income and stability over higher long-term gains from share price growth.

Due to the nature of its covered call strategy, the ETF will likely underperform during a bull market, where it restricts potential upside returns.

Moreover, the tax treatment of its distributions -- primarily ordinary income -- makes it less tax-efficient, suggesting that it is best held in tax-advantaged accounts like a Roth IRA to maximize returns.

FAQ

Market

FAQ

How can I invest in JEPI ETF?

Open your brokerage account, search for the ticker symbol "JEPI," decide on the number of shares you want, pick your order type (market or limit), and then execute your buy order.

What is the symbol for the JPMorgan Equity Premium Income ETF?

The ticker symbol for the JPMorgan Equity Premium Income ETF is JEPI.

20.21%

How can I invest in J.P. Morgan ETFs?

Visit the J.P. Morgan Asset Management website to view their complete list of ETFs. Check with your broker to see if they offer the ETFs you're interested in and follow the same steps as investing in JEPI.

Is JEPI a secure long-term investment?

JEPI tends to be less volatile compared to regular stock funds, offering potentially safer returns. However, the use of equity-linked notes (ELNs) introduces counterparty risk, where the financial stability of the issuer could impact performance.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of Our Website’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of Our Website's board of directors. Tony Dong has no position in any of the stocks mentioned. Our Website has positions in and recommends AbbVie, Amazon, Mastercard, Meta Platforms, Nvidia, Progressive, ServiceNow, and Visa. Our Website recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. Our Website has a disclosure policy.

7.44%

Due to its defensive income-oriented strategy, the JPMorgan Equity Premium Income ETF (JEPI) is an attractive option for investors seeking a balance between income and stability, particularly during uncertain market phases.
The JPMorgan Equity Premium Income ETF (JEPI) employs a unique strategy that involves selecting undervalued stocks from the S&P 500 with lower volatility and favorable Environmental, Social, and Governance (ESG) criteria, as well as using equity-linked notes (ELNs) to collect regular income through covered calls against the S&P 500.