JEPI vs. JEPQ: A Comparison of Two High-Yield Monthly Pay ETFs
Introduction
Both JEPI and JEPQ are actively managed ETFs that utilize a covered call strategy to generate outsized monthly income. They have rapidly gained popularity among income investors due to their high yields and diversified portfolios.
Expense Ratios and Management
The expense ratios for both ETFs are identical at a reasonable 0.35%. This covers the costs of their semi-actively managed strategies, which implement notional covered calls to generate monthly income.
Yields and Sector Concentrations
JEPI has a 12-month trailing dividend yield of 9.49%, while JEPQ has a yield of 7.69%. JEPI’s higher yield is primarily due to its greater concentration in mega-cap tech stocks, which have been generating larger options premiums on covered call sales. However, this advantage could shift in the future.
In terms of sector allocation, JEPQ is significantly more concentrated in technology than JEPI. Nearly 50% of JEPQ’s portfolio is invested in technology stocks, while JEPI has less than 20% in technology and more exposure to sectors such as industrials and healthcare.
Historical Performance and Top Holdings
JEPQ has outperformed JEPI since its inception, largely due to the strong performance of mega-cap technology stocks. However, this outperformance is not necessarily expected to continue over the long term.
JEPI’s top holdings include Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Meta (META), and Alphabet (GOOGL), with a combined exposure of over 40%. In contrast, JEPQ’s top holdings are more diversified, with its top holding, Progressive Corporation (PGR), accounting for only 1.72% of its portfolio.
Investor Takeaway
For a standalone high-yield fund, JEPI is more diversified and provides more stability. Its diversified portfolio may make it a more attractive investment in various market conditions, especially for those cautious about an economic downturn and high tech stock valuations.
However, if you are looking to add concentrated exposure to the mega-cap tech space in a diversified portfolio of high-yield stocks and funds, JEPQ is a better choice. It provides exposure to a sector that is difficult to find in high-yield stocks, while still generating a high income yield.
Ultimately, the best choice for you depends on your investment goals and risk tolerance. Both JEPI and JEPQ are solid options for income investors seeking monthly pay and high yields.
