Is JEPI a good investment for 2024?
The JEPI ETF's use of Equity-Linked Notes, or ELNs, resulted in higher tax rates for investors. The outlook for JEPI in 2024 is uncertain, with potential underperformance if the S&P 500 is led higher by the Magnificent Seven.
The economic data indicates that in a mild recession in 2024, a historically average bear market decline could send option premiums soaring, and JEPI's yield could return to 13%. While JEPI's historical performance has blown away management's guidance, remember its purpose in your portfolio.
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.
JEPI 12 Months Forecast
Based on 121 Wall Street analysts offering 12 month price targets to holdings in the last 3 months. The average price target is $60.46 with a high forecast of $68.08 and a low forecast of $51.84. The average price target represents a 6.41% change from the last price of $56.82.
In 2023, SPYI generated total returns of 18.13% and price returns of 4.69%. JEPI's total returns were 9.81% with price returns of 0.90% over the same period. SPYI remains a consistent outperformer within the category and has a management fee of 0.68%.
Is JEPI a Good Investment? JEPI can be a good investment for more experienced, risk-averse investors who are looking for an ETF that can provide low-volatility, stocklike returns with superior yields. However, JEPI may not be for beginners or long-term investors.
| Ticker | Fund name | 5-year return |
|---|---|---|
| SMH | VanEck Semiconductor ETF | 33.79% |
| SOXX | iShares Semiconductor ETF | 30.26% |
| XLK | Technology Select Sector SPDR Fund | 25.12% |
| IYW | iShares U.S. Technology ETF | 24.37% |
The downside of such a strategy is that it caps a lot of, if not all, share price appreciation potential because in a rising market, the call options would be exercised by the buyer at below market prices. That gives covered call ETFs a bit of an uneven return profile.
Reason #1 To Avoid JEPI: Its Expense Ratio Is Rather High
One reason why JEPI is not a great choice for retirees is that its 0.35% expense ratio is rather high compared to many other passive income funds. For example, SCHD's expense ratio is only 0.06%.
Other investors, especially more aggressive, long-term buy-and-hold investors, might disagree. In general terms, both funds have broadly similar investment thesis, but I do find JEPI to be the slightly stronger choice. The fund's lower-volatility holdings and strong dividends are a perfect match for many retirees.
What ETF has 12% yield?
| Symbol | Name | Dividend Yield |
|---|---|---|
| QRMI | Global X NASDAQ 100 Risk Managed Income ETF | 12.19% |
| YYY | Amplify High Income ETF | 12.05% |
| KBWD | Invesco KBW High Dividend Yield Financial ETF | 11.91% |
| SDIV | Global X SuperDividend ETF | 11.90% |
| Dividend ETFs | Dividend Yield |
|---|---|
| Vanguard International High Dividend Yield ETF (VYMI) | 4.39% |
| Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) | 4.55% |
| WisdomTree U.S. SmallCap Dividend Fund (DES) | 2.92% |
| FCF International Quality ETF (TTAI) | 10.38% |
JEPI Dividend Information
JEPI has a dividend yield of 7.65% and paid $4.36 per share in the past year. The dividend is paid every month and the last ex-dividend date was Mar 1, 2024.
Choose SCHD for market-like returns, lower expenses, and a solid yield above broader market index funds. Choose JEPI for a high-yielding investment, monthly dividends, and reduced market volatility (lower gains when the market rises, shallower losses when the market falls).
However, it is important to note that JEPI is not a safe ETF by any means. A covered call strategy can buffer against losses, but only to the amount of premium received. It is not a true hedge, and still exposes investors to more or less the same downside risk.
While the fear of recession is turning investors risk-averse, JEPI, with its focus on high-conviction stocks, low volatility, and stellar yield, appears attractive. Per the recommendations of 1,721 analysts, the 12-month average JPMorgan Equity Premium Income ETF price target of $61.05 implies 11.57% upside potential.
Their recent payouts were impressive: JEPI's 12-month yield was 11.7% at the end of 2022, compared with only 1.7% for the S&P 500 index. The majority of this yield came from selling one-month calls on the S&P 500 and paying out all the proceeds, or call premiums.
JEPI does this by investing up to 20% of its assets into ELNs (equity-linked notes) and selling call options with exposure to the S&P 500.
While JEPI shines as a high-yield fund during bear markets, it's important to remember that it's not built to outperform the stock market over the long haul. The fund's main aim is to provide a stable return of 6-8% per year, a target that may not compete favorably with the returns of a bull market.
| Growth ETFs | Expense Ratio |
|---|---|
| Nuveen ESG Large-Cap Growth ETF (NULG) | 0.26% |
| iShares Morningstar Mid-Cap Growth ETF (IMCG) | 0.06% |
| Vanguard Mid-Cap Growth ETF (VOT) | 0.07% |
| Vanguard S&P Small-Cap 600 Growth ETF (VIOG) | 0.15% |
Which ETF gives the highest return?
| Symbol | Name | 5-Year Return |
|---|---|---|
| GBTC | Grayscale Bitcoin Trust | 67.50% |
| USD | ProShares Ultra Semiconductors | 58.79% |
| FNGU | MicroSectors FANG+™ Index 3X Leveraged ETN | 53.73% |
| FNGO | MicroSectors FANG+ Index 2X Leveraged ETNs | 49.76% |
| Fund (ticker) | YTD performance | 5-year performance |
|---|---|---|
| Vanguard Information Technology ETF (VGT) | 6.0 percent | 22.7 percent |
| Financial Select Sector SPDR Fund (XLF) | 7.3 percent | 11.0 percent |
| Energy Select Sector SPDR Fund (XLE) | 2.2 percent | 11.1 percent |
| Industrial Select Sector SPDR Fund (XLI) | 5.8 percent | 11.6 percent |
JPMorgan Equity Premium Income ETF (JEPI)
To unlock greater income potential in a Roth IRA, investors can opt for a derivative income fund such as JEPI, which uses more complex options selling strategies to produce higher-than-average yields.
JEPI may be tax-inefficient, as distributions from the fund may be taxed as income, and dividends from underlying stock holdings are not considered qualified because of the offsetting options positions.
My Thoughts: JEPI vs JEPQ
These funds could be good options to add to your portfolio if you're looking to prioritize dividend cash flow and minimize volatility in your portfolio. The big difference between the two funds is that JEPI is focused on the S&P 500 index. While JEPQ is focused on the NASDAQ 100 index.
