Reddit Investors Are Freaking Out Over This ETF

When the mainstream media gets a hold of something, they tend to sensationalize and distort the living you know what out of it. For example, if you watch the Today Show or CBS Evening News, you’d think only gun-slinging, get-rich-quick, meme stock-loving knobs populate investing subreddits on Reddit. And you’d be wrong. 

While Reddit conversations about stocks and ETFs can be extreme, they’re also plenty useful, even if you only lurk the platform. In part, because they can be extreme. Seeing extreme opinions makes it easier to find the middle ground. And we all know the truth tends to lie somewhere in the middle. At the same time, you’ll also find moderate thoughts. 

With this in mind, we thought we’d see what they’re saying on Reddit about one of the most searched ETFs in Trackstar, our proprietary sentiment indicator. The JPMorgan Equity Premium Income ETF (JEPI) is the third most searched ETF among all investors, number six overall among financial pros and the third most searched large cap growth ETF among professionals. Just the other day, The Juice added it to our sample ETF portfolio for long-term investors. 

After you read today’s newsletter, be sure to check out: 

• Start Here To Build A Killer ETF Portfolio (our most viewed newsletter so far this summer)
• How To Construct Your ETF Portfolio
• Using Trackstar Data To Find Solid Stocks And ETFs 

Those links are your one-stop shop for building an ETF portfolio and using The Juice to identify stock and ETF opportunities. 

So, yeah, they’re freaking out in a good way about JEPI over on Reddit. 

Longish story short, some income-focused investors love JEPI because, at the moment, it has a 30-day yield of 7.7% and 12-month dividend yield of about 10.6%. It achieves these impressive numbers by owning a solid core of S&P 500 stocks and selling (somewhat complicated) S&P 500 index options (that are not like traditional calls everyday investors buy and sell). For details on this, see JEPI’s prospectus here.  

While JEPI went on a run in the second half of March, it’s up just 2% or so YTD. So it’s not about share price appreciation for investors. It’s about income. 

For example, one Reddit commenter said: 

I like JEPI’s investment ideas, and I love getting dividends every month.

Generating monthly income from an investment is a big deal for quite a few investors. The Juice detailed two easy ways to do this earlier this year. This is a JEPI selling point. 

Breaking it down, if you own 100 shares of JEPI, you would have collected $35.93 with the fund’s most recent, July 7 dividend payment of 0.3593 cents per share. Of course, you can reinvest that $35.93 into new shares of JEPI, which will increase your position size and, all else equal, subsequent dividend payments. 

JEPI’s dividend payment changes each month. The January payment was the highest of the year so far at 0.57292 cents per share. 

Many Redditors agree… if you’re an older investor, focused less on capital appreciation and more on generating income to live off, JEPI makes sense. 

However, quite a few younger Redditors are considering or are already in JEPI. Here’s a snapshot of the debate around the impact of age on the decision to buy JEPI, or not. One of these conversations started like this:

Does anyone younger (<55) have a significant portion of their money in JEPI? Psychologically, having the monthly dividend income to DRIP and continually reinvest and seeing your dividends increase nearly every month is highly motivating.

In and outside of Reddit, this is a major point of contention among investors. Some, like this Redditor, just love dividend growth investing and see it as suitable when you’re young:

I have a lot of JEPI. As someone who lived off dividend income for a time before I was 30 I can tell that even tho your tax implication will be higher it’s not going to bring your account to zero. These boomers are just terrified of taxes.

Then there’s this along the same line from another Redditor:

I’m 29. I want to retire as early as possible. Life isn’t too long…

While total returns matter. I don’t wanna be forced to work for survival a minute longer than I have to.

So while I can deploy that money towards growth only. I do both growth and income/dividends.

I would say income/dividends motivates me the most.

Across all my accounts which includes 401k,Roth and taxable brokerage I’m at $3,300 estimated dividends for the year. I have about 12,500 out of 110k portfolio value in jepi. But next year I’ll add even more jepi in my IRA and start adding main as well.

Right now I have about a 3% yield total across all accounts.

So the goal for this investor is to maximize income generation and get it to a point where monthly dividend income can replace earnings from a job. 

Ambitious, even righteous goal, but it’s a tall order. 

This is known as living off of yield. And, as The Juice explained earlier this year, it takes a huge nest egg to generate enough money to pay for most lifestyles. For example, a 3% annual yield on $1,000,000 only throws off $30,000 in income. If your holdings deteriorate in value, that income number could very well and might likely go down. So the dance between growth and income is an important one to not only consider, but thoughtfully finesse. 

To that end, a word of warning from another Redditor:

I think you need to write down or think about what your goals are for your investments.

Investing in a high yielding fund simply because they payout monthly is one of the reasons why so many people got burned on QYLD.

QYLD being the Global X NASDAQ 100 Covered Call ETF (QYLD). 

Also popular among financial advisors in Trackstar, this ETF generates monthly income by writing traditional covered calls against Nasdaq 100 stocks. With a 12-month dividend yield of roughly 10.8%, it’s enticing. And it’s up in price nearly 14% in 2023. However, over the last year it’s flat and over the last five years, it’s down about 27%. 

Here again, that tussle between growth and income. 

The Bottom Line: We’ll say it again, the truth lies somewhere in the middle. Maybe more accurately, there’s no general truth. Just yours. Whether you’ll invest in a JEPI or QYLD or Apple (AAPL) or Uber (UBER) depends on your time horizon, appetite (or lack thereof) for risk and other factors specific to your situation. 

As usual, you’re probably best off taking several approaches because, while people love to play favorites and argue their side, clear pros and cons exist to most investing styles as well as individual investments, whether they’re talking about them on Reddit or not.

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