Over the last couple of years, exchange-traded funds (ETFs) that use covered call strategies to generate income have become the rage. I have a tracking list of 98 ETFs, 55 of which have launched in the last two years. Today, I’m focusing my attention on two of these funds. Their sponsors only wish to gather the assets of two covered call ETFs offered by JP Morgan.
The JPMorgan Equity Premium Income ETF (JEPI) launched on May 5, 2020. The ETF has $3.72 billion in assets, held in an actively managed portfolio with an options overlay using out-of-the-money S&P 500 index call options. Selling call options generates cash to pay an attractive dividend. JEPI has a current dividend yield of 7.89% and a 12-month rolling yield of 7.39%. Dividends are paid monthly. Fund managers use proprietary screens for stock holdings to select stocks with lower volatility. Here are the top holdings:
The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) came into the market two years after JEPI, with a May 3, 2022, launch date. The fund has gathered $22.88 billion of assets. The JEPQ portfolio is designed to give investment exposure to the Nasdaq 100 stock index, which is heavy with large-cap tech stocks. JEPQ uses an options overlay with out-of-the-money Nasdaq 100 index call options. JEPQ has a current dividend yield of 9.34% and a 12-month rolling yield of 10.42%. Dividends are paid monthly. You will see a lot of recognizable popular stocks in the top ten holdings.
Both ETFs have generated both attractive yields and solid positive returns for investors. This chart compares the share price and total returns for JEPI and JEPQ since the launch of JEPQ:
The last two years have been a massive bull market and it shows with the JEPQ total return of 45.32%, compared to 26.93% for JEPI. However, in a troubled market, JEPI may work out better. For the last three months, through March 4, JEPI posted a negative return of 0.56% compared to a loss of 2.41% from JEPQ.
Over those three months, the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100, was down by 2.90%. The SPDR S&P 500 ETF Trust (SPY) dropped by 3.37%.
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