This ETF utilizes a covered call strategy, in which investors sell call options while owning an equivalent amount of the underlying security.
J.P. Morgan Exchange-Traded Fund Trust - JPMorgan Equity Premium Income ETF (JEPI)
From The Dividend Hunter
JPMorgan Equity Premium Income ETF JEPI differs significantly from most covered call ETFs. First, it does not use a widely followed index or ETF as the underlying portfolio. The fund portfolio uses a proprietary stock selection algorithm. The JEPI literature says the fund: “Constructs a diversified, low volatility equity portfolio through a proprietary research process designed to identify over and undervalued stocks with attractive risk/return characteristics, and “[seeks] to deliver a significant portion of the returns associated with the S&P 500 Index with less volatility, in addition to monthly income.”
The portfolio holds 97 stocks with relatively equal weightings. For example, the top 45 stocks carry position weights between 1.2% and 1.57%. Here are the top 10 stock symbols: INTU, MSFT, ACN, TGT, AMZN, GOOGL, LLY, PPG, UPS, and TT. This top 10 represents quite a diverse group of stocks, and the rest of the holdings have a similar spread across the market sectors. The stock holdings account for 85% of the total JEPI portfolio.
The remainder of the portfolio accounts for the fund’s unique strategy to provide covered call returns. The 15% (max of 20% allowed) consists of Equity Linked Notes (ELNs), “derivative instruments that are specially designed to combine the economic characteristics of the S&P500 Index and written call options in a single note form.” The ELNs provide cash flow from written call options to pay JEPI dividends.
All-in-all, JEPI, which launched at the end of May 2020, uses both a stock portfolio strategy and covered call strategy quite different from its peers. I am intrigued.
Let’s look at the historical returns. Since inception, the fund total return was 28.6%. The one-year return as of June 21, 2021, was 26.4%. Year-to-date through June 8 gives an 10.6% total return.
The fund pays monthly dividends.
In a rising market, JEPI impresses. The yield is excellent, and the total return numbers are outstanding for a covered call strategy.
Tim Plaehn, The Dividend Hunter, yn345.isrefer.com/go/cabmdpc/cab/, July 2021