This Premium Income ETF Yields Almost 10%

Ever since the Fed implied further rate hikes off the table, stocks have been on a tear.

But it’s the large-cap names that have done exceptionally well.

To capture this fervor, we pulled the top large-cap growth ETFs that don’t follow an index or use a common strategy, such as dividend appreciation.

Top of the list is JPMorgan Equity Premium Income ETF (JEPI), an actively managed ETF that pays a hefty 9.14% dividend yield.

While that sounds delicious, we’ve seen how strategies that deviate from core indexes don’t always outperform them.

So, is this one any different?

Key Facts About JEPI

• Net assets: $30.3 billion
• 12-month trailing yield: 9.14%
• Inception: May 20, 2020
• Expense ratio: 0.35%
• Number of holdings: 119

JP Morgan’s actively managed fund sells call options (covered calls) on U.S. large-cap companies. It attempts to improve performance by only selecting stocks with lower volatility and value characteristics.

A covered call option caps the potential upside of a stock to the strike price of the option contract until the expiration date.

For example, if I own 100 shares of Apple and sell a covered call option with a $200 strike price that expires in three months, I participate in all the gains in Apple up to $200, but not beyond until the call option expires in three months.

By selling an option, I get paid a premium which I get to keep regardless. That premium is the extra income the fund seeks to obtain while still allowing for price appreciation.

Source: ETFDB.Com

Performance

As this is a newer fund, the total returns are only reflective of the last few years.

So, it’s essential to compare consider that when evaluating the fund’s performance.

Source: JPMorgan

Compared to the S&P 500, the returns aren’t too shabby. To give you an idea of the total performance, JEPI comes to 28.8% over the 3-year period, while the S&P 500 lands at 34.4%.

Competition

Keeping those numbers in mind, we now want to compare some of the other unique large-cap ETF strategies out there and see how they all stack up.

• VanEck Vectors Morningstar Wide Moat ETF (MOAT): MOAT follows a staggered, equally weighted index of 40 U.S. firms that, according to Morningstar’s assessment, exhibit the highest fair value and maintain a durable competitive edge.
• Vanguard Mega Cap Growth ETF (MGK): This fund mirrors an index consisting of mega-cap stocks in the U.S., selecting and weighting its holdings according to growth-related factors.
• iShares Edge MSCI USA Quality Factor ETF (QUAL): QUAL follows an index comprising U.S. large- and mid-cap companies chosen and weighted according to their high return on equity, consistent earnings growth, and low debt-to-equity ratios compared to sector peers.
• Anfield Equity Sector Rotation ETF (AESR): AESR employs an active management approach as a fund-of-funds, focusing on large-cap equities in the U.S., strategically rotating sectors based on macroeconomic analysis and forecasting techniques.

AESR is the only actively managed ETF on this index, and comes with the worst overall performance.

Conversely, Vanguard’s MGK follows a simple mega-cap index and is the second-highest-performing stock.

JEPI is unique in that it achieves both performance and large dividend payments, which isn’t easy.

Our Opinion 10/10 

We used to have a less favorable opinion of JEPI in the past.

However, it’s performance isn’t far off the S&P 500. And the ability to offer investors a choice between dividend income or capital appreciation through reinvestment is unique.

So, as far as unique large-cap ETFs go, we like this one for the additional flexibility it provides with relatively low fees.

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