JEPQ: What Am I Missing?

[Qs Laptop]

I've got a lot of money on the sidelines right now. It's likely the Fed is about done with raising rates, might be another one or two small ones. I'm looking to get aggressive in my IRAs, so I'm looking at NASDAQ stocks. In my research I came across JEPQ, JP Morgan Nasdaq Equity Premium Income ETF.

This is an ETF with MSFT, AAPL, GOOG, AMZN, NVDA, and TSLA comprising more than 50% of the fund. Basically, where the Nasdaq goes, the stocks in this fund will be leading it.

The intriguing thing to me is that this fund pays a monthly dividend, last month it was 12% of the share price, annualized. So, if you think the NASDAQ is going to rebound, and in particular if you think these six stocks are going to do well in the ensuing months/years you would be in a good position if you were to buy this fund. However, if it pays a 10% to 12% (annualized) dividend every month? Outstanding, IMO.

Yes, I know the dividend payment has the effect of lowering the share price the next day it is paid out (usually.)

What am I missing?


JEPQ Dividends.png

[braumeister]

It's a brand new ETF, less than a year old, so hard to evaluate.

I do notice that my personal favorite, SCHD, has outperformed it for that time frame.

[MarieIG]

You mentioned that you will be getting aggressive in your IRAs - so I'm assuming that you will be holding these in your IRAs? Otherwise, these may generate too much taxable income for you.

I have no idea how the Nasdaq will do over the next five years although hopefully it will go up in the long run. If you buy this I would be prepared for a bumpy ride, reinvest the dividends, and hold it in an IRA.

(If I bought it I would dollar cost average into it.)

Currently, when I'm not off buying something I shouldn't, I am trying to dollar cost average into SCHD & SCHF.

[Qs Laptop]

Quote:

Originally Posted by braumeister It's a brand new ETF, less than a year old, so hard to evaluate. I do notice that my personal favorite, SCHD, has outperformed it for that time frame.

Yes, it is a bit new. I need to do more research and look at their turnover rate.

Thanks for mentioning SCHD, very nice choice. I will have to check it out more in depth.

[Qs Laptop]

Quote:

Originally Posted by MarieIG You mentioned that you will be getting aggressive in your IRAs - so I'm assuming that you will be holding these in your IRAs? Otherwise, these may generate too much taxable income for you.

Yes, would be in my IRA's. I realize with that kind of income generation best to have it in a non-taxable account.

Quote:

I have no idea how the Nasdaq will do over the next five years although hopefully it will go up in the long run. If you buy this I would be prepared for a bumpy ride, reinvest the dividends, and hold it in an IRA.

I was thinking of taking the dividends as cash and stick the money into something safer. Reap the rewards and then protect the assets.

Quote:

(If I bought it I would dollar cost average into it.)

Understand.

Quote:

Currently, when I'm not off buying something I shouldn't, I am trying to dollar cost average into SCHD & SCHF.

Again, SCHD looks real good and SCHF looks very good. Thanks.

[yhoomajor]

From what I remember, this ETF sells Calls against stocks that it holds. So most of dividend that it pays, comes from those Call premiums.

Not commenting on the merit of this ETF. Just the mechanics of dividends in this ETF. Don't expect this ETF to perform at same rate as underlying securities (in either direction).

[ERD50]

Quote:

Originally Posted by yhoomajor From what I remember, this ETF sells Calls against stocks that it holds. So most of dividend that it pays, comes from those Call premiums. Not commenting on the merit of this ETF. Just the mechanics of dividends in this ETF. Don't expect this ETF to perform at same rate as underlying securities (in either direction).

Thanks, I was just looking, and it appears that none of those stocks pays more than ~ 1% div, and several are zero. So where does the "10% to 12% (annualized) dividend" come from? OK, from selling calls, that makes sense. IME, getting a 10~12% premium on a liquid stock means selling calls close to the current price. So very likely giving up growth (a rise in price will have the stock taken from you).

Might be fine, might not, but there's no magic there, just probability and the laws of averages.

-ERD50

[pb4uski]

Quote:

Originally Posted by yhoomajor From what I remember, this ETF sells Calls against stocks that it holds. So most of dividend that it pays, comes from those Call premiums. Not commenting on the merit of this ETF. Just the mechanics of dividends in this ETF. Don't expect this ETF to perform at same rate as underlying securities (in either direction).

I think perhaps you are thinking JEPI, which is slightly more well established (June 2020) and based on the S&P 500... this JEPQ is similiar but based on the NASDAQ and was established in June 2022.

In both cases they invest in the index and sell OTM covered calls to generate income.

Since JEPI started it has returned 11.51% vs 11.79% for SPY, in both cases with dividends reinvested so I don't see the magic.

JEPQ has done worse... since its inception in June 2022 it has returned -5.57% vs -4.19% for QQQ.

[milford]

JEPQ generates its income via NASDAQ covered calls and ELN similar to JEPI. If you think NASDAQ is going to start shooting up then you should opt for QQQM not JEPQ because JEPQ's primary purpose is a stream of income, not growth. If you think NASDAQ will be flat or fluctuate then JEPQ would be the better choice.

[Qs Laptop]

Quote:

Originally Posted by pb4uski Since JEPI started it has returned 11.51% vs 11.79% for SPY, in both cases with dividends reinvested so I don't see the magic. JEPQ has done worse... since its inception in June 2022 it has returned -5.57% vs -4.19% for QQQ.

May I ask what tool you are using to get these results?

I found this calculator (I wish it was more customizable) but it shows since JEPQ inception date of 05/05/2022 it has returned -3.83% through 03/24/23.

In the same time frame QQQ has returned -4.14%.

Since 06/01/22:
JEPQ -0.65%
QQQ 1.12%


https://dqydj.com/etf-return-calculator/

[Qs Laptop]

Quote:

Originally Posted by milford JEPQ generates its income via NASDAQ covered calls and ELN similar to JEPI. If you think NASDAQ is going to start shooting up then you should opt for QQQM not JEPQ because JEPQ's primary purpose is a stream of income, not growth. If you think NASDAQ will be flat or fluctuate then JEPQ would be the better choice.

Yes, this makes sense. Any reason why you suggest QQQM and not QQQ?

[NW-Bound]

Quote:

Originally Posted by ERD50 Thanks, I was just looking, and it appears that none of those stocks pays more than ~ 1% div, and several are zero. So where does the "10% to 12% (annualized) dividend" come from? OK, from selling calls, that makes sense. IME, getting a 10~12% premium on a liquid stock means selling calls close to the current price. So very likely giving up growth (a rise in price will have the stock taken from you). Might be fine, might not, but there's no magic there, just probability and the laws of averages. -ERD50

Mention covered calls, and I sit right up and start to pay attention. Heh heh heh...

Yes, that's what I have been doing, and mostly on individual stocks and sector ETFs.

I don't go for 10-12% annualized gain from option premium though. The chance of "losing" good stocks via call assignments in a stock surge is too high. When I sell a contract, the premium is usually higher than 12% when annualized, but I don't unconditionally sell all the time, and not on all stocks. Hence, my total return from option selling as computed over the entire accounts is a lot less than 10-12% annualized. This is added icing-on-the-cake return, and is still a lot more than I spend. Hence, I like to do this. Heh heh heh...

In the end, one still has to compare any long-term performance with a buy/hold/rebalance indexing portfolio.

[pb4uski]

Quote:

Originally Posted by Qs Laptop May I ask what tool you are using to get these results? I found this calculator (I wish it was more customizable) but it shows since JEPQ inception date of 05/05/2022 it has returned -3.83% through 03/24/23. In the same time frame QQQ has returned -4.14%. Since 06/01/22: JEPQ -0.65% QQQ 1.12% https://dqydj.com/etf-return-calculator/

Portfolio Visualizer...using monthly function... only does whole months.... so June to Feb 2023... will extend to end of March 2023 on Apr 1.

[Qs Laptop]

Quote:

Originally Posted by pb4uski Portfolio Visualizer...using monthly function... only does whole months.... so June to Feb 2023... will extend to end of March 2023 on Apr 1.

Ah yes, thank you. I'm familiar with Portfolio Visualizer.

[milford]

Quote:

Originally Posted by Qs Laptop Yes, this makes sense. Any reason why you suggest QQQM and not QQQ?

Lower expense ratio. QQQM is for the cost conscious ETF buyer, QQQ is the "brand name" ETF, but they are basically the same product in terms of holdings.