JEPI ETF is lagging the SPY: Here’s why it’s still a good buy

The JPMorgan Equity Premium Income (JEPI) ETF has underperformed the broader market this year as the S&P 500 index has jumped. JEPI is up by about 0.205 this year while the SPDR S&P 500 fund has jumped by 15%. $10,000 invested in the SPY ETF in January is now worth $11,495 while the same amount invested in JEPI is now worth over $10,476.

The case for JPMorgan Equity Premium Income ETF

JPMorgan Equity Premium Income is an ETF that is similar to SPY in that it tracks the same companies as those in the S&P 500 index. The only difference is that the fund invests about 80% in companies in the S&P 500. 

It then invests the remaining funds in the options market through the so-called Equity Linked Notes (ELNs). It sells these ELNs that are linked to the S&P 500, giving it a chance to generate income through the options premium.

In most cases, JEPI and other covered call ETFs tend to underperform in a bull market since the option premium declines as stocks jump. A good thing, however, is that the fund tends to capture the upside using the 80% it has invested in the other parts of the S&P 500 index. 

This diversification gives JEPI a good risk profile. As shown below, the standard deviation stands at 14.18 compared to the overall median of 21.35. Its annualized volatility of 11.75% is better than the median estimate of 18.65%.

JEPI risk profile

I am a big proponent of vanilla ETFs like the SPDR S&P 500, Invesco QQQ, and SPDR Dow Jones index. These ones are simple-to-understand funds that have worked well over years. As such, I always recommend having them as a big part of your portfolio. 

At the same time, investing in JEPI and other covered call ETFs makes sense because of their strong dividend yields.

JEPI ETF stock forecast

The daily chart shows that the JEPI fund has been in a bullish trend in the past few months. During this period, the fund has moved above key resistance levels at $50 and $53.87 (December 13th high).

JEPI ETF has moved above all moving averages while the MACD has moved above the neutral point. Therefore, there is a likelihood that the fund will continue rising as buyers target the next key resistance point at $60.