SCHD vs JEPI: Which is a better ETF for income investors?

The Schwab US Dividend Equity (SCHD) and JPMorgan equity Premium Income (JEPI) are two popular ETFs among income investors. They both have high dividend yields and a good track record of rewarding holders. SCHD yields about 3.4% while JEPI yields almost 8%. So, which is the better fund to invest in between the two?

What are SCHD and JEPI?

SCHD and JEPI are ETFs that are designed to provide investors with regular and consistent dividends. But the two are significantly different since SCHD is a passive fund while JEPI is an active one. 

SCHD tracks the Dow Jones 100 index, which is made up of 100 quality companies that have a good track record of paying dividends. Some of the most notable companies in the fund are Broadcom, Home Depot, and Cisco. Most of these firms are in the health care, industrials, financials, and technology.

JEPI, on the other hand, is the biggest ETF offered by JPMorgan. It is an actively managed fund that uses a strategy known as a covered call. In addition to owning companies in the S&P 500 index, JEPI also sells S&P 500 index call options.

The goal of this approach is fairly simple. It benefits when the S&P 500 index rises. When this happens, it also benefits through the premium of its call option, which it can use to distribute to investors. JEPI’s call option also helps when the S&P 500 index declines since the premium usually offsets the losses. 

Which is the better buy?

As such, SCHD and JEPI aim to reward investors but use a different approach to do so. They also have different expense ratios. As a passive fund, the SCHD ETF costs just 0.06% while JEPI has an expense ratio of 0.35%. Therefore, in this case, SCHD seems like a better fund although the spread between the fees is not all that big.

The other important metric to look at is the return between the two. In this case, as shown above, JEPI has returned 30.8% in the past three years while SCHD has had a 27% return. This return includes 2022 when American stocks tanked.

Looking at the performance in the past 12 months, we see that JEPI jumped by 11% while SCHD had just 3.38%. Therefore, this is a sign that JEPI’s returns are significantly better in difficult and better times than SXHD.

This happens because JEPI has a bigger exposure to the fast-growing technology sector compared to SCHD. In this case, while JEPI has a higher expense ratio, there are signs that it will continue doing better than SCHD in the long term. However, as I have written before, I believe that vanilla ETFs like SPY and QQQ are better alternatives to both JEPI and SCHD because of their long track record of performance.