The Only Time To Buy This 10% Yield: JEPQ

seekingalpha11-19

JEPQ is a highly popular ETF due to its strong performance since inception and attractive ~10% annualized yield with monthly payouts.However, I do not think that it makes sense to buy JEPQ in the vast...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2484968127?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1495609278/image_1495609278.jpg","is_english":true,"pubTime":"2024-11-19 06:00","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2484968127","market":"sh","top_or_hot":-1,"title":"The Only Time To Buy This 10% Yield: JEPQ","media":"seekingalpha","content":"<div>\n<p>JEPQ is a highly popular ETF due to its strong performance since inception and attractive ~10% annualized yield with monthly payouts.However, I do not think that it makes sense to buy JEPQ in the vast...</p>\n\n<a href=\"https://seekingalpha.com/article/4738303-the-only-time-to-buy-this-10-percent-yield-jepq\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>The Only Time To Buy This 10% Yield: JEPQ</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe Only Time To Buy This 10% Yield: JEPQ\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-19 06:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738303-the-only-time-to-buy-this-10-percent-yield-jepq><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>JEPQ is a highly popular ETF due to its strong performance since inception and attractive ~10% annualized yield with monthly payouts.However, I do not think that it makes sense to buy JEPQ in the vast...</p>\n\n<a href=\"https://seekingalpha.com/article/4738303-the-only-time-to-buy-this-10-percent-yield-jepq\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"JEPQ","symbol_name":"J.P. MORGAN NASDAQ EQUITY PREMIUM INCOME ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4738303-the-only-time-to-buy-this-10-percent-yield-jepq","article_id":"2484968127","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1495609278/image_1495609278.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2484968127","pubTimestamp":1731967200,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"JEPQ is a highly popular ETF due to its strong performance since inception and attractive ~10% annualized yield with monthly payouts.However, I do not think that it makes sense to buy JEPQ in the vast","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"JEPQ":"J.P. MORGAN NASDAQ EQUITY PREMIUM INCOME ETF"},"translate_title":"唯一购买10%收益率的时间：JEPQ","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"JEPQ":0.9},"content_text":"JEPQ is a highly popular ETF due to its strong performance since inception and attractive ~10% annualized yield with monthly payouts.However, I do not think that it makes sense to buy JEPQ in the vast majority of cases.I share the only time I think that it makes sense to buy JEPQ.   akinbostanci/iStock via Getty Images  The JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) has become a very popular investment vehicle among retail investors. This is evidenced by the fact that its assets under management have soared from its launch in early 2022 to today, with nearly $18.4 billion in assets under management. Data by YCharts Of course, there is good reason for that, as the fund has delivered strong performance since its launch and, in particular, has significantly outperformed some of its peer funds, such as the Global X NASDAQ 100 Covered Call ETF (QYLD), by more than a two-to-one margin. JEPQ has generated a 43.72% total return since its inception, while QYLD has only generated 20.65% total returns over that same period. Data by YCharts As we discussed in a previous article comparing the two funds, the major drivers behind JEPQ's outperformance relative to QYLD are its much lower expense ratio of 0.35%, compared to QYLD’s 0.61%, as well as the fact that JEPQ's option strategy is not nearly as restrictive as QYLD’s, thereby enabling the fund to participate more in periods of upside than QYLD does. In exchange, it pays out a slightly lower yield, albeit still a very generous one. That said, as a simple play on mega-cap tech, I still think that investing in the NASDAQ directly is a better option. In this article, I will discuss why and also the only time I think it is worthwhile to buy JEPQ, which has a nearly 10% yield. Why It Rarely Makes Sense To Buy JEPQ I think that investing in a NASDAQ ETF like the Invesco QQQ Trust (QQQ) is in many cases a better way to invest in mega-cap technology than JEPQ is. This is evidenced, in part, by the fact that QQQ has meaningfully outperformed JEPQ since JEPQ’s launch, as depicted in the chart below. Data by YCharts However, my reasoning runs deeper than simply the funds' past history. Rather, it lies in the underlying strategies employed by JEPQ and QQQ. JEPQ's strategy centers on holding an underlying index that resembles QQQ's and then implementing a notional monthly covered call strategy on top of it to generate monthly cash flow that it can distribute to shareholders in the form of an attractive dividend. What this does is effectively reduce JEPQ’s sequence-of-returns risk by giving investors a higher probability of generating a positive return each month in exchange for capping its upside potential. Covered call strategies, in general, can potentially make sense, even from a total return standpoint, when implemented in a very disciplined manner as part of a value-driven, opportunistic capital recycling program. However, for growth investments like the NASDAQ, it makes much less sense. This is especially the case when looking at a diversified ETF that does not employ a value investing strategy, such as JEPQ and QQQ, and even less so when the stocks in that ETF are growth stocks. This is because - when you are investing in a growth stock or a basket of growth stocks - you are looking to maximize capital appreciation over the long term. Generally, you also want to do that in as tax-efficient a manner as possible. Selling call options creates regular taxable events for shareholders, unless, of course, you are holding it in an IRA. However, even in the case of holding it in an IRA, where short-term taxable events are relatively meaningless in the big scheme of things, it still is not the best approach. The main appeal of investing in a tech stock over a dividend income stalwart is that these companies generate powerful growth and, through innovation, can accelerate and extend that growth runway over long periods of time, thereby delivering outsized total returns over the long term. Once you take the potential for outsized total returns over the long run off the table by writing calls against your holdings, mega-cap tech loses much of its appeal as a long-term wealth-compounding vehicle. This negative effect that covered calls can have on long-term wealth accumulation is evidenced by the fact that since JEPQ’s launch, it has only seen its actual NAV appreciate by 8.8%, despite this being a tremendous bull market for QQQ, which has seen its value rise by over 50% during the same period. Data by YCharts Meanwhile, during periods of sharp market drawdowns, both funds will experience similar drawdowns since JEPQ distributes the cash flows it generates from its option sales, so its stock price will still depreciate. This means that over the long term, JEPQ’s ability to sustain its NAV is also potentially questionable. Even if it proves to be a lucrative income stock that generates a sustainable NAV and cash flow over time, it still loses much of its appeal as a tech investment because it misses out on powerful upside runs like those currently being enjoyed by the NASDAQ. The 1 Time It Makes Sense To Buy JEPQ That said, there is one situation where buying JEPQ does make sense, in my view. That is when two requirements are simultaneously met: (1) An investor is looking to live off of investments today and therefore wants to reduce their sequence-of-returns risk. As discussed previously in this article, this makes sense in the case of covered call ETFs because selling covered calls reduces sequence-of-returns risk and delivers a more consistent monthly return for investors. (2) That investor wants to diversify their portfolio across multiple sectors and needs exposure to the mega-cap tech space without diluting their income yield. This also makes sense because most top dividend ETFs, like the Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard High Dividend Yield Index Fund ETF (VYM), and the SPDR Portfolio S&P 500 High Dividend ETF (SPYD), all lack meaningful exposure to mega-cap technology stocks. As a result, while you may be getting a decent yield and even some dividend growth by investing in those funds during periods in which AI stocks are soaring, as they have been in recent years, these other ETFs may get left significantly behind in the total returns department. As a result, investors in these funds may want exposure to JEPQ and can then engage in regular portfolio rebalancing to optimize their risk-adjusted returns and maintain good diversification across sectors over time. The difference that holding JEPQ can make in diversifying a portfolio like this is evidenced by looking at JEPQ’s total returns relative to SCHD since the beginning of May 2023, when the AI boom really took off in the stock market. Over that period, JEPQ has outperformed SCHD by an enormous margin. Data by YCharts On top of that, JEPQ has proven to be a remarkably consistent monthly dividend payer. Even with some volatility in the premiums month to month, it still provides substantial distributions each month, which can help go a long way toward covering living expenses. Data by YCharts Investor Takeaway As this article discusses, implementing a blanket covered call strategy on the NASDAQ is not necessarily an ideal way to approach the mega-cap tech sector, as it can be self-defeating in terms of the appeal of investing in high-growth tech stocks. That said, in a unique situation where the investor plans to live off of their portfolio today and therefore prioritizes reducing sequence-of-returns risk while still wanting to include some of the world's largest and greatest companies in their portfolio, a fund like JEPQ makes a lot of sense. Combining its relatively low expense ratio, strong performance relative to some of its peers, attractive nearly 10% annualized distribution yield that is paid monthly in a fairly consistent manner, and high concentration in mega-cap tech stocks—with over 50% of its portfolio in technology compared to other monthly-pay funds like the JPMorgan Equity Premium Income ETF (JEPI), which has just 20% in technology, or the NEOs S&P 500 High Income ETF (SPYI), which has only 33% of its portfolio in technology stocks—JEPQ can be a powerful portfolio diversifier and income instrument for the right kind of investor.  For all others, especially those focused on compounding wealth and maximizing total returns over the long term, and who do not plan on living off of passive income today, investing in lower-cost, straightforward NASDAQ ETFs like QQQ would be a much better option. Given that I am still focused on maximizing total returns, instead of investing in JEPQ, I am investing in individual stocks and implementing an opportunistic capital recycling program that is based on valuations at High Yield Investor.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484968127"}