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The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) just cracked the top 10 ETF inflows list, pulling in $5.7 billion in new money year to date. Its sister fund, the JPMorgan Equity Premium Income ETF (JEPI), has added another $3.5 billion over the same period.
That’s no small feat.
JEPQ & JEPI Income Strategies
Just three years after launching, JEPQ now manages more than $24 billion in assets. JEPI, which launched in 2020, has ballooned to nearly $39 billion. Together, the two anchor a rapidly growing category of exchange-traded funds using options overlay strategies to generate income.
These strategies typically involve selling call options on top of a portfolio of stocks, a tactic known as covered call writing. In exchange for giving up some upside, the funds collect option premiums that can be distributed to investors as income.
JEPI takes a slightly more complex approach, using equity-linked notes (ELNs) to replicate a covered call strategy on the S&P 500. ELNs are debt instruments whose returns are tied to the performance of an underlying strategy; in this case, an S&P 500 covered call approach. JEPI allocates up to 20% of its portfolio to ELNs, while the rest is invested in a basket of low-volatility, value-oriented U.S. stocks. ESG criteria may also play a role in stock selection.
This hybrid approach has delivered stronger returns than more mechanical strategies like the one used by the Global X S&P 500 Covered Call ETF (XYLD). Since launching in 2020, JEPI has returned approximately 70%, compared to 56% for XYLD over the same period. For comparison, JEPI’s performance has been in line with the iShares MSCI USA Min Vol Factor ETF (USMV) but trails the SPDR S&P 500 ETF Trust (SPY), which gained 107% in that timeframe.
Lower Volatility, Higher Yields
JEPI has delivered on its low-volatility promise, with a standard deviation of around 11.5% over the past year—the lowest among the ETFs mentioned.
JEPQ applies the same concept to a different corner of the market, drawing most of its holdings from the Nasdaq-100. It also uses ELNs to replicate a Nasdaq-based covered call strategy, distributing the income monthly. Like JEPI, it aims to offer high yield and reduced volatility relative to its benchmark.
So far, the strategy has worked. Since its 2022 launch, JEPQ has returned 44%, more than double the 20% return of the Global X Nasdaq 100 Covered Call ETF (QYLD). Still, it lags the 57% gain for the Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 without any options overlay.
In terms of volatility, JEPQ lands somewhere in the middle: It posted a 17.8% standard deviation over the past year, compared to 22.8% for QQQ and 16.5% for QYLD.