JPMorgan's massively popular income ETF is getting beat by its own sister fund

Published Sun, May 14 20237:31 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The JPMorgan Premium Equity Income ETF (JEPI) has become a big hit with investors looking to generate cash in a period of high inflation, but the fund might soon be overshadowed by its younger sibling. JEPI's yield topped 10% for much of last year, attracting heavy inflows. Investors are still jumping into the fund in 2023, pushing its total assets to about $26 billion. While the fund has beaten the broader market over the past 12 months, all of those new investors haven't gotten high-end returns in 2023. Through May 11, the fund has a total return of just 3.4% year to date, underperforming the S & P 500. The 30-day SEC yield has also dipped below 10%. Meanwhile, its sister fund, JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) , has been a big winner for investors. That fund has returned more than 17% this year, and its 30-day SEC yield is nearly 14%, as Nasdaq stocks have outperformed the S & P 500. "It's not that I'm doing anything better or differently, but the underlying assets are associated with an underlying index that has outperformed," said Hamilton Reiner, a portfolio manager for both products at JPMorgan Asset Management. JEPQ, which launched in May 2022, has been a hit in its own right, and now has more than $2 billion of assets. Both funds work in similar ways. Reiner's team combines active stock selection with equity-linked notes, which generate income for the fund but do limit some of the upside for products during big market rallies. The notes are structured to function in a way that resembles a covered call strategy. JEPI, which is linked to the S & P 500 , has a more defensive group of stock holdings, none of which make up more than 2% of the fund. JEPQ, on the other hand, has big weights in some of the tech stocks that have raced ahead in 2023. "It's about stock selection. We're going to look for those that we think are the long-term winners … and be slightly overweight those," Reiner said. "But because the Nasdaq is such a highly concentrated index, we're still going to own some of those stocks that we don't think are as good as some of the ones we like more. … We're just going to be underweight them." Because JEPQ's equity linked notes are tied to the more volatile Nasdaq-100, the fund can generate more income, boosting its yield, while capturing more of the market upside. "More volatile means you're going to get more potential upside by selling a farther-out-of-the-money call, and more income," Reiner said. Long term, the fund's yield should range between 9% and 11%, Reiner added. The fund's success shows that there is an appetite among investors for a more conservative way to get exposure to the Nasdaq growth stocks. "From a strategy perspective, we want to give you income and we want to give you total return. Some strategies focus on one or the other, but we want to give you a little bit of both," Reiner said.