Got $10,000? This Unique Nasdaq ETF Could Turn It Into About $1,000 of Income Each Year.
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The Nasdaq-100 Index is all about growth stocks -- it holds the top nonfinancial stocks listed on the Nasdaq stock exchange. That growth focus has enabled the index to deliver superior investment returns: It has more than doubled the return of the S&P 500 over the last 15 years.
If there's one drawback to the Nasdaq-100, it's that it doesn't produce much income (the index's dividend yield is currently 0.8%). However, there is a way to have your proverbial cake and eat it too.
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The JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ) offers lower-volatility exposure to the Nasdaq-100, and monthly income. Here's a look at how this unique exchange-traded fund (ETF) can turn a $10,000 investment into roughly $1,000 of income each year.
A premium income stream
The JPMorgan Equity Premium Income ETF has a twofold investment approach:
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Underlying equity portfolio: The fund's managers use data science and fundamental research to construct an equity portfolio.
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Disciplined options overlay strategy: The ETF writes out-of-the-money call options on the Nasdaq-100 Index to generate distributable income each month. (Out-of-the-money call options are above the current market price.)
The fund's strategy of writing options generates a lot of income. It writes (sells) call options on the Nasdaq-100 Index, enabling it to collect income from options premiums. An option premium is the price paid by the option buyer to the seller. As an options seller, the ETF gets to keep 100% of this income if the option expires worthless. That income fluctuates because options premiums are higher during more volatile periods.
The fund's strategy of writing calls on the Nasdaq-100 index is very lucrative: Its last monthly distribution had an annualized yield of 12.4%. Over the last 12 months, the yield is 9.9%. That's much higher than other high-yielding asset classes. For example, high-yield U.S. bonds have a yield of around 7% right now, while real estate investment trusts (REITs) and 10-year Treasury bonds are below 4%.
To put this ETF's yield into perspective, a $10,000 investment would produce about $990 of annual income at the trailing-12-month rate. That compares to only $80 of dividend income on a similar investment in a Nasdaq-100 ETF like Invesco QQQ Trust.
Equity market upside exposure
Income is only part of the return generated by this ETF. It also offers equity market exposure by holding a portfolio of high-quality stocks. Its top holdings include notable Nasdaq-100 names Nvidia (7.7% allocation), Apple (7.2%), Amazon (4.6%), and other well-known technology and consumer companies.
