Buy, Sell, or Hold JPMorgan’s Equity Premium Income ETF Today

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Buy, Sell, or Hold JPMorgan’s Equity Premium Income ETF Today (JEPI).

trade ideas :: 3hrs ago :: source - 24/7 wallstreet

By Omor Ibne Ehsan

Quick Read

JPMorgan Equity Premium Income ETF (JEPI) offers an 8.42% monthly yield through covered calls on a diversified portfolio of 110 holdings across tech (15.7%), industrials, healthcare, and consumer cyclical sectors, with a 0.35% expense ratio. Alphabet (GOOG) is the second-largest holding at 1.81%. SCHD is presented as a better long-term compounding alternative for buy-and-hold investors.
JEPI is designed for retirees and investors 70+ who prioritize income over capital appreciation, as covered call ETFs cap upside potential and recover slowly from market downturns, making long-term wealth accumulation difficult despite their defensive positioning.

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Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and JPMorgan Equity Premium Income didn't make the cut. Grab the names FREE today.

The JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) is the most popular covered call ETF in the market for a reason. Most ETFs are trying to make covered calls work with tech ETFs, and while they do have significantly higher yields, JEPI does it in a way that is worth paying attention to for some investors.

I say "some investors" because covered call ETFs are not for everyone. You are getting a yield of 8.42% paid out monthly, and this is a yield that is close to the "too good to be true" territory. The expense ratio is at 0.35%, plus this is an ETF that has yet to go through the test of a true downturn.

Let's look at how JEPI makes that happen and who should own it.

JEPI is among the best in its class

I do believe covered call ETFs that focus only a portion of their holdings on farming premiums are the best ones. But if you are someone who needs the higher yield every month, I do not think you should turn away from JEPI. This ETF has 110 holdings. The S&P 500 ELN is the biggest holding with 11.53% exposure, followed by 109 other holdings. The second-biggest holding is Alphabet (NASDAQ:GOOG) with a weighting of just 1.81%.

What makes this covered call ETF so popular is that this ETF does not lean into the most popular tech stocks or stocks that are trading with crazy volatility. You are going to see a little bit of everything inside this ETF. Tech exposure is at 15.7%, followed by Industrials, Healthcare, and Consumer Cyclical at 10-12% each.

This gives you a lot more defense compared to an ETF that is employing a covered-call strategy on top of the Nasdaq-100, for example.

Why JEPI is safer

When you buy a covered call ETF, you are, to put very simply, turning the market's upside into a dividend stream. What many investors don't think about is what would happen if the market stops going up and corrects significantly. The incessant rally in the past few years should not fool you into giving up your skepticism.

If you hold a covered call ETF when the market declines sharply, your holdings are going to decline alongside the market, often just as sharply. The issue is that it is going to take you a much longer time to recover. Covered call ETFs cap upside potential significantly, so each dip is harder to come out of. The market has seen too many green days over the past few years to make this a significant problem.

But when the market does see red for a prolonged period of time, JEPI is among the few covered call ETFs that are more prepared for this. JEPI's holdings are focused on a defensive portfolio. Thus, the decline in the first place should be more contained if the market were to go down.

Who should buy JEPI and who shouldn't

The issue with JEPI is that it is not going to compound well over many decades. The market is going up, and this is the perfect time to buy JEPI if you want significant income, but the rally will not last forever. You'll end up better off if you just buy the S&P 500 or another non-covered call ETF like the SCHD (NYSEARCA:SCHD) if you plan to buy, hold, and reinvest for a long time.

Where JEPI does make sense is if you are old. If you are 70-plus, you don't have to worry about where your portfolio will be in 20 years. Even if you live to 90, you're going to be fine with a significantly smaller portfolio by then. Thus, letting JEPI turn your portfolio into a big cash stream without having to sell any of your principal is not a bad idea. You're getting your investments back as cash back in a controlled manner, so JEPI is a buy in my book if you are a retiree.

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