In this JEPI ETF review, we will immediately see whether it is a good investment, or yet another trap for greedy people.
It is true that this is a rather new ETF, but the returns and the investment house that invented it are both fascinating.
Are you looking for instant cash flow for your money?
Then Jepi ETF is good for you.
Come with me.
Table of Contents
Is JEPI a Good Investment?
According to analysts, JEPI is a good investment for investors who want to reduce the volatility of their portfolio without compromising returns. An ETF like JEPI, in moderate amounts, can be a good choice for sophisticated investors, retirees, and those following the FIRE movement.
It would be desirable for everyone to understand how this ETF works before investing, as it is not a conventional fund and is based on a mechanism that may be difficult for some to comprehend.
The fact that this ETF invests in strong low volatility stocks in the world’s most prestigious index, the S&P 500, does not mean that it is a risk-free investment.
An ETF like this can be perfect to hold when markets go up and when they are sideways.
On the other hand, I should not expect positive performance from the “capital gain” side during stock market downturns.
My personal experience with JEPI ETF is good and I am happy to invest this way to generate consistent monthly income.
Investments in securities and other financial instruments always involve the risk of loss of your capital. The forecast or past performance is no guarantee of future results. It is essential to do your own analysis before making any investment. 74% of the ETFs available at the Freedom24 platform generate passive income in the form of dividends.
Pros and Cons of Investing in JEPI
Like everything also JEPI ETF has pros and cons.
Here are a few of both:
Negative aspects of investing in JEPI
This is a complex ETF
In an ideal world, investors should spend some time understanding how this ETF works. Not only is it actively managed (which is not to everyone’s taste), but it also uses notes, ELNs, which are more understandable to experienced investors.
The JEPI ETF is not free from the typical risks of listed securities in the markets; the factor that JEPI likes best is that it can “reduce volatility”, which does not mean that you cannot experience flat or negative returns. In fact, this has already happened. It is based on a covered call strategy, so there is some degree of downside risk, even if managed by the top fund managers in the world.
Short track record
It would be nice to have an ETF like this with a long history behind it, but unfortunately JEPI is a young ETF. The fact that it is actively managed makes it impossible to even do a retrospective study. Still, I have to register that JEPI has outperformed its competitors on a risk-adjusted basis even during the past bear market and the interest rates hikes.
Covered call options are nothing new and JEPI is exposed to the risks associated with these strategies.
JEPI uses ELNs, so it implicitly creates counterparty risk. It is true that these are issues that can be controlled by experts such as those at JP Morgan, but it would be unfair not to mention them.
Positive aspects of investing in JEPI
JEPI investors receive a dividend every month.
JEPI ETF generates immediate monthly income
Covered calls can generate fairly stable cash flows in many market conditions.
The JEPI ETF is relatively inexpensive for a complex and, above all, actively managed ETF. The expense ratio is 0,35%.
It is a JP Morgan product
JP Morgan has staked a lot of reputation on this ETF, which is now almost more popular than SCHD and SPY.
Analysts agree that they will do whatever it takes to make its actively managed portfolio work as well as possible.
JEPI claims to replicate around 85% of the returns of the SP500 index on which it is based, but with much lower volatility. So far it has succeeded.
What Is JEPI ETF?
Born in 2020, the JEPI ETF is the shortened name for “JPMorgan Equity Premium Income”.
We are discussing an ETF that pays an average of nearly 10% per year on a monthly basis, a rate of return that attracts everyone from pensioners to portfolio managers to FIRE enthusiasts.
These are JEPI’s stats:
|Fund Family||JP Morgan|
|AUM||48 million USD|
|Date of inception||2020|
|Category||Actively managed exchange-traded fund|
|Investment objective||To Provide stabile monthly distributions + capital growth|
|Desired JEPI’s Yield||7,5% – 12,7% yearly|
JEPI objective is to seek current income while trying to achieve also capital appreciation. The ETF seeks to produce income by creating an actively managed portfolio of equity securities comprised significantly of those that are part of the fund’s primary benchmark, the S&P Total Return Index. On the other hand, the fund also tries to achieve capital appreciation through ELNs, selling call options with exposure to the S&P 500 index.
How Does It Work?
JEPI ETF does not do just one thing, it does two and it is an actively managed portfolio ETF.
The first activity is to invest in very high capitalisation, low volatility stocks taken from the S&P 500.
The second activity is a simple covered call strategy.
This second strategy is carried out through “notes,” ELNs or Equity Linked Notes.
The goal of JEPI is to generate current income and at the same time, allow some capital growth.
As a result, it varies somewhat from an ETF like QYLD, which is only for income (although the latter is volatile; if value is lost in the stock market, so are clients/investors).
Here’s an excellent image that explains where the dividend money comes from.
Why Investors Are so Interested in JEPI
Investors are all interested in JEPI because it promises to do three things that everyone’s heart beats for:
- Pay a dividend every month
- Try to generate price growth
- Maintain low volatility
- It is a very high Yield ETF
With these assumptions, I would say that it is logical that this is all people are talking about and I myself am a very interested investor.
Is JEPI suitable for European Investors?
Covered call ETFs like this are not normally easy to access in Europe.
JEPI EFT investor seeks current income and long-term growth of capital.
European investors can buy JEPI ETF only from some specific broker like Freedom24 (my broker now):
Jepi Performance & Forecast
JEPI is providing consistenti monthly income to its investors but the dividend is not stable, it fluctuates.
If I buy Amazon Stocks I get zero dividend. If I buy JEPI ETF I can aim to a +9% dividend.
The price of equity securities may fluctuate due to many factors including stock market volatility.
JEPI vs. Similar ETFs
Here are a few JEPI alternative and similar covered call funds ETFs to generate income.
Compare table with JEPI and its alternatives:
|AUM (in millions)||29 M||7,5 B||4,7 B|
JEPI Vs. JEPQ
Most investors prefer JEPI to JEPQ.
This is because JEPI is older (2020 vs. 2022) and has simply performed better.
Both pay monthly dividends.
JEPI vs. QYLD
Most investors prefer JEPI, but I think this may be due to popularity rather than sound reasoning.
JEPI has performed better, but they are not really comparable.
JEPI vs. SCHD
SCHD is much older than JEPI.
SCHD is also cheaper, so I think JEPI is a good integration in a portfolio where SCHD is present.
JEPI Reddit reviews & Financial Forums
Here are some opinions on JEPI that I found on Reddit and the main financial forums online:
Unless the whole economy crashes, the JEPI dividend is here to stay and that’s enough for me (buy and hold forever).
Whether you want to retire or achieve financial freedom, you need tools like this. If you are waiting to get rich by barely beating inflation, you are hopeless.
I look forward to selling some of my SCHD high and then buying more JEPI and QYLD for the long term.
I wish I had known about this JEPI thing before. Because even if JEPI is new, I’ve just found out that QYLD has been around for ages and nobody knew about it. I am ok with downside risk as long as I get juicy dividends monthly.
Taxation of this beautiful ETF
According to its prospectus, the JEPI ETF pays 100% of its net investment income to its participants.
In most cases, investment income is taxed as ordinary income. Therefore, the premiums on these option contracts, as well as any other income you earn, will most likely be taxed at ordinary income rates, depending on your country.
This makes JEPI unsuitable for investors who wish to reinvest these dividends manually, as the growth may be negatively affected by tax.
As you can imagine, income investors love this ETF also for the potential capital gains that are not taxed until you sell (except in Switzerland, Austria and UK).
Top 5 JEPI Holdings ETF
As you can see, the top stocks in JEPI are huge, old reliable dividend companies selected by JP Morgan specialists. This is based on a defensive equity portfolio.
These stocks may change anytime since this is an actively managed portfolio.
Who is Jamie Dimon at JP Morgan?
James Dimon is a billionaire American businessman. He has been Chairman and Chief Executive Officer (CEO) of JP Morgan Chase, the largest of the four US banks, since 2005.
Here is a young Jamie Dimon:
He is considered one of the most influential men on the planet and he may one day run for Presidency of the United States.
They say that James Dimon really wanted this ETF.
Here are the JEPI ETF manager:
Video JEPI Review on YouTube
What is an ELN (equity linked notes)?
If you’ve never heard of an ELN (equity linked note), you’re not alone; neither had I until I started researching this ETF. However, I’m sure you’ve heard of the word ‘derivatives’ and this note is a form of derivative.
ELNs are structured as notes issued by counterparties such as banks, broker-dealers or their affiliates and, according to the JEPI fund prospectus, are designed to provide a return related to the underlying instruments within the ELN. The premiums on the call options writing the equity linked notes generate an ongoing cash flow for the fund and are an important component of the fund’s performance.
So, although it sounds very scientific and complicated, all you need to know is that it works in a similar way to a fund like QYLD. The critical element to remember is that the majority of the income returned to investors is essentially premium generated by the short call position within the ELN (counterparty risk).
So that’s the core concept and how it works, but what are the holdings of the JEPI ETF? If we look at the core JEPI holdings , equity linked notes make up about 16% of the total equity holdings. This is how JPMorgan Equity Premium Income generates income for us, the investors. These bonds represent about 16 per cent of the total assets of the fund.
Beyond the ELNs, the fund is an actively managed portfolio of equity securities comprised significantly of those included in Standard & Poor’s Total Return Index.
What Could Go Wrong With JEPI?
Due to its defensive structure, JEPI may underperform in the long run.
This is not necessarily a bad thing because we are not forgetting what we like about JEPI: low volatility.
Reducing it comes at a price and in this case it is not too high.
Is JEPI ETF too big?
Can JEPI ETF become too large to manage its options position adequately?
Probably this is not an issue.
JEPI currently holds about $3 billion in ELN, which represents approximately 15% of its portfolio. JEPI’s portfolio manager believe that the depth of the S&P 500 options market makes the ETF’s substantial options position very unlikely to become problematic.
Conclusions: Should I buy more JEPI ETF?
And, as usual, I have to qualify this: I am not a financial advisor, just a happy JEPI ETF owner and a curious investor.
However, if you are looking for consistent monthly income generation and want your investments to pay you as much as possible today, then JEPI may be a good choice for a limited part of your portfolio.
Rather than building the largest portfolio imaginable in 25 years, JEPI should be a solid choice for you to generate income now. Based on all my studies and research on the subject, it appears to be a strong investment and a wise choice. Adding it to your portfolio would not be a mistake.
As I said, my personal experience with the JEPI ETF has been good and I plan to add more to my dividend portfolio in the near future.
Here is where I buy my JEPI ETF:
JEPI ETF FAQ
JEPI ETF makes money by selling options on its selection of stocks.
JEPI pays dividends every month.
JEPI pays so much because it works with options and also with traditional dividend stocks.
Analysts agree that JEPI is complex but it is not a specially risky investment.
JEPI is considered to be a safe investment but still quite complex, so it is better to understand how it works before buying.
YES, JEPI is a good buy for dividend seekers that can’t afford too much volatility and prefer an actively managed portfolio.
Morgan Stanley is amongst the top shareholders of JEPI now.
JEPI has 502 millions shares outstanding.
YES, JEPI pays dividends Avery single month.
At the moment JEPI cannot to be considered overvalued.
JEPI AUM (assets under management) is approximately 29 million and growing fast.
JEPI should not be compared to th S&P 500 because it has very little in common. The JEPI performance still depends for the performance of some selected SP500 stocks.
JEPI is able to pay such a high dividend because it has implemented an option strategy to an actively managed portfolio dividend stocks portfolio.
The best investment ever does not exist yet, but JEPI can be be considered suitable to cover a share of a dividend portfolio.
Most financial analysts agree that JEPI is a good investment especially for those willing to reduce volatility.
Only a small proportion of JEPI dividends are qualifying, so the tax efficiency of JEPI will depend on your situation.
We are sorry that this post was not useful for you!
Let us improve this post!
Tell us how we can improve this post?