Invesco QQQ ETF investors: Buy JP Morgan’s JEPQ too

Investing in technology stocks and ETFs has been a great way to make money over the years. In this period, companies like Tesla, Amazon, and Google have grown from small startups to trillion-dollar companies. In this article, I will compare two of the best investment options for people interested in the tech industry: Invesco QQQ and JEPQ.

What are QQQ and JEPQ ETFs?

The best way to invest in tech companies is to identify quality companies like Tesla and Google and invest them for a long time. However, for most people, identifying a small basket of tech names is not easy. 

As a result, many people invest in ETFs that track these companies. Invesco QQQ is the biggest technology-focused ETF with over $202 billion in assets under management and an expense ratio of 0.20%.

JP Morgan Nasdaq Equity Premium Income (JEPQ) is a relatively new ETF that was launched in 2022. It has over $3.95 billion in assets. While the fund tracks stocks in the Nasdaq 100 index, it applies a covered call strategy.

A covered call strategy is one that aims to boost investor returns by selling short-term call options that are out-of-the-money. In this case, JEPQ sells one call option for every 100 shares of QQQ it holds. 

In the long-term, JEPQ will always underperform a vanilla ETF like QQQ since American stocks tend to always rise. However, investors love JEPQ and other similar funds like JEPI because of their overall income. For example, JEPQ has a dividend yield of 11% while QQQ has a yield of about 0.60%.

JEPQ and QQQ have a similar composition. Their biggest companies are Microsoft, Apple, Alphabet, Nvidia, and Meta Platforms. However, since JEPQ is actively managed, the manager has the discretion to add or reduce the holdings. As such, while QQQ has 102 companies, JEPQ has 81.

QQQ vs JEPQ: better buy?

Regular readers know that I am highly supportive of QQQ and QQQM. The two are simple-to-understand ETFs that have a low expense ratio. They also track some of the best-known tech companies in the US.

Therefore, I believe that QQQ investors should buy some JEPQ in case of a major downturn. While the two funds track each other, JEPQ tends to do well when there is a major reversal. 

Since JEPQ is a relatively new fund, a look at JEPI vs SPY shows that the former does well in terms of high volatility. As shown above, JEPQ outperformed JEPI during last year’s downturn.

Further, JEPQ ETF will provide some income, thanks to its higher dividend payouts. However, while the fund has a higher yield, its dividend payouts will always be a bit volatile.