JEPI ETF yields 7.7%, SPY yields 1.2%: Which is a better buy?

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on Jun 7, 2024
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  • The JPMorgan Equity Premium Income ETF has underperformed the market this year.
  • Its total return in 2024 stands at 5.92%, lower than the SPDR S&P 500’s 12.8%.
  • The fund will likely continue to underperform the broader market this year.

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JPMorgan Equity Premium Income ETF (JEPI) has become a highly popular fund among income investors because of its high dividend returns. Its assets have jumped to over $33 billion and inflows are expected to keep rising.

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What is JEPI ETF?

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JPMorgan Equity Premium Income ETF has become one of the biggest actively managed funds on Wall Street. It aims to provide its investors with cash appreciation by investing in the S&P 500 index. It also aims to generate regular income through the concept of covered call options. 

A covered call is an approach where a trader buys an asset and then sells calls on the same. A call option gives you the option to buy an asset at a specific price within a certain period. In this case, the JEPI ETF buys some companies in the S&P 500 index and then sells their call options.

The biggest companies in the JEPI ETF are Microsoft, Progressive, Amazon, Trane Technologies, and Meta Platforms. The other names are firms like Alphabet, Mastercard, Southern, and Visa. 

In such an arrangement, the fund benefits when the index rises. When the index remains sideways, it still makes money through the call option premium. On the other hand, its losses are offset by the premium when the index drops.

JEPI ETF has done well since its inception as its stock has jumped from $34.6 to over $56 today. In this period, it has returned more money through its dividend payouts. Altogether, its total return since its inception stood at 23%.

JEPI vs SPY returns

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JEPI is beloved because of its strong dividend payouts to investors. For a long time, it had a dividend yield of over 10%, a figure that has dropped to about 7.7% today. This is still a big yield at a time when short-term government bonds are yielding about 5%. The 10-year yield stands at around 4.5%.

However, as I have written before, JEPI is an inferior asset compared to the popular generic ETFs like the SPDR S&P 500 ETF, which has a miniscule yield.

JEPI’s total return this year stands at 5.92%, which is much lower than SPY’s 12.85%. Similarly, its annual return in 2023 was 9.8% while the SPY ETF returned 255. In 2021 when stocks surged, JEPI returned 21% while the SPY ETF returned 28%.

JEPI vs SPY

JEPI vs SPY ETFs 3-year return

JEPI did better than the SPY ETF in 2022 when it dropped by 3.5% as the latter fell by 18%. As such, there are signs that JEPI does better when stocks are falling. 

Therefore, there is a likelihood that the fund will continue to trail the SPY ETF this year because of numerous tailwinds. US stocks tend to do well in an election year. Also, there are signs that the Federal Reserve will start cutting interest rates later this year while earnings are doing well. Data by FactSet showed that earnings grew by 5.4% in the first quarter.

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