JEPI vs QYLD: Which ETF is Better?!
Both JEPI and QYLD seek to generate consistent income for their investors through covered call contracts. They do this by holding a basket of blue-chip stocks and writing call options against those stocks to earn extra money.
What exactly are covered calls?
A covered call is an options strategy that involves selling call options against shares of stocks that you own. The call option gives the buyer the right to purchase your stocks at a predetermined price (the "strike price") at some point in the future, while the seller of the call option is obligated to sell the stock at the strike price if the buyer exercises their option.
The seller of the call option receives a premium payment for taking on this obligation (think of it like an insurance payment). The investor selling the call option is said to be "covered" because they already own the stocks and can fulfill the obligation to sell them at the agreed strike price if the buyer decides to exercise the option.
If the stock price rises above the strike price, the buyer of the option will make a profit from the sale of the call option.
If the stock price does not rise above the strike price, the seller of the call option will keep the premium from the call option, which is their profit.
In simple terms: If the stock does not go up and hits the options strike price, the call option seller keeps the premium payment and does not have to sell the stock. However, if the stock goes up and hits or passes the strike price, the call option seller keeps the premium payment and has to sell the stock at the agreed strike price to the contract buyer.
JEPI - JPMorgan Equity Premium Income ETF
Goal: Makes money by selling options and investing in large blue-chip U.S. stocks to get monthly income from option premiums and stock dividends. The fund seeks to offer a consistent income stream with lower volatility than the S&P 500. It is ideal for retirees or those ready to live off their investments.
Number of companies held: 128
JEPI dividend yield: 11.70%
JEPI Expense Fee: 0.35%
Pros of JEPI:
JEPI was one of the most popular ETFs of 2022. Attracting all types of investors with its high-yield monthly paying dividend payment. JEPI is structured to deliver a 5% to 8% dividend yield over time, and 6% to 10% annual returns. The fund does this by using covered calls, meaning it writes options against an underlying portfolio of stocks in the fund to generate extra income.
Cons of JEPI:
Beating the stock market isn't the goal of this fund, and JEPI fund managers make it clear that investors shouldn't expect the high dividend yield to continue. Covered call ETFs generally perform best in volatile bear markets, which is likely why this fund was a favorite in 2022.
The Top 10 Stocks Held In $JEPI:
QYLD - Global X Nasdaq 100 Covered Call ETF
Goal: QYLD seeks to generate income through covered call writing, which historically produces higher yields in periods of volatility. The fund holds NASDAQ 100 stocks. QYLD has made monthly dividend distributions for 9 years running.
Number of companies held: 100
QYLD dividend yield: 12.85%
QYLD Expense Fee: 0.60%
Pros of QYLD: QYLD has a longer track record of running when compared to JEPI. The fund launched in December 2013. And it has made consistent payments to its investors every single month since then. In addition, the fund executes a covered call option strategy to offer higher yields during high stock market volatility periods.
Cons of QYLD: Like JEPI, beating the stock market isn't the goal of this fund. Although the fund offers consistent dividend payments, the current dividend yield won’t remain high forever. Especially during the next bull market.
The Top 10 Stocks Held In $QYLD:
My Thoughts: JEPI vs QYLD
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 QYLD is focused on the NASDAQ 100 index.
QYLD is more established and has a longer track record. In contrast, JEPI is a newer fund.
JEPI is a much larger fund than QYLD, with $11.5 billion in assets under management compared to QYLD's $7.1 billion in assets under management. Additionally, JEPI charges a slightly lower expense ratio of 0.35%, while QYLD charges a slightly higher expense ratio of 0.60%.
The funds weren’t created to outperform the stock market over the long run. Instead, they were made for people looking to minimize portfolio volatility and earn consistent monthly dividend payments. So although they might outperform during bear markets… bull markets will be another story.
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I recently put together a master list of 88 different ETFs designed to support different investment goals. You can grab it here.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #086
Do you have a suggestion on which ETFs I should compare next? Let me know here. :)
