How to Invest in the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)

You’re probably familiar with the Nasdaq 100 index – a collection of the 100 largest non-financial stocks listed on the Nasdaq exchange, which includes the tech giants often referred to as the “Magnificent Seven.”

These stocks have historically provided excellent capital growth. However, they are not particularly known for their dividends, which can be a disadvantage for income-seeking investors.

State JPMorgan Nasdaq Equity Premium Income ETF (YEPQ 0.25%), one of the best ETFs designed to allow investors to own Nasdaq stocks while earning income through certain financial technologies.

This ETF is quite complex and tailored for advanced investors, so here’s what you need to know before considering an investment.

What is it?

What is the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)?

This ETF targets stocks from the Nasdaq-100, with a focus on technology and growth sectors, but with discretion to select stocks outside the index if they meet the fund’s criteria.

The active management component focuses on identifying undervalued stocks or those with lower volatility, while considering environmental, social and governance (ESG) factors.

This approach aims to construct a portfolio that captures most of the growth potential of Nasdaq-listed companies while attempting to reduce risk exposure relative to the broader market.

The options strategy employed by this JPMorgan ETF involves the use of equity-linked notes (ELNs), which are essentially debt instruments linked to the performance of the Nasdaq-100 index. These ELNs are used to execute a covered call strategy, specifically to sell out-of-the-money call options on the index.

The premiums collected from these calls are an important source of the fund’s income, increasing its returns. This method aims to provide regular income to investors through option premiums, but may limit upside returns.

How to buy

How to Buy the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)

Here is a step-by-step general guide on how to invest in this ETF:

1. Open your brokerage app: Log in to your brokerage account where you manage your investments.
2. Search for the ETF: Enter “JEPQ” in the search bar to bring up the ETF’s trading page.
3. Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this ETF. Determine the number of shares you want based on the current price and your available investment funds.
4. Select order type: Choose between a market order to buy at the current price or a limit order to specify the highest price you are willing to pay. Market orders execute quickly at the current market price, while limit orders are set to trigger at a price you define, giving you control over the purchase price.
5. Submit your order: Confirm the details of your order, including the number of shares and order type, then submit your buy order to the market.
6. Review your purchase: Once your order has been placed, check your portfolio to ensure that the shares of JEPQ have been added. Review the purchase to confirm that it is consistent with your investment strategy.

Warning: Make sure you buy the USD version of JEPQ listed on Nasdaq, as there is a Canadian version of the ETF that trades in CAD on the Toronto Stock Exchange (TSX).

Holding

Holdings in JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)

Here are the top holdings of this ETF in November 2024:

1. Nvidia (NVDA -1.03%)
2. Apple (AAPL -0.01%)
3. Microsoft (MSFT -0.58%)
4. Amazon (AMZN -0.5%)
5. Meta platforms (META -0.66%)
6. Alphabet (GOOG -1.06%)
7. Broadcom (AVGO 0.02%)
8. Tesla (TSLA 9.09%)
9. Netflix (NFLX -0.33%)

JEPQ’s portfolio is heavily weighted towards the technology sector, which represents 41% of its assets, followed by the communications services and consumer sectors at 13% and 12% respectively. This agrees well with the Nasdaq index’s typical sector distribution.

Be aware that this ETF has a high portfolio turnover rate of 168%, indicating frequent trading of its holdings throughout the year.

Should I invest?

Should I invest in the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)?

This JPMorgan ETF can be an attractive option for investors looking for income while maintaining exposure to the tech-heavy Nasdaq-100.

The ETF’s strategy of combining dividend-paying technology stocks with a hedging approach provides a monthly income stream while attempting to mitigate the volatility associated with the technology sector through active stock selection.

However, potential investors should consider whether they are comfortable with JEPQ’s heavy exposure to the technology sector, which can be cyclical compared to more diversified funds.

The use of ELN to implement the covered call strategy also limits the upside potential of the ETF, making it less suitable for those primarily seeking capital growth.

Distributions

Does the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) pay a dividend?

Yes, this ETF pays dividends, but it is important to note that these are not dividends in the traditional sense.

The payouts consist primarily of ordinary income due to the Fund’s use of ELN for covered call strategies. This type of income is taxed at a higher rate than qualified dividends, making it less tax efficient.

The return on this ETF can be quite variable, affected by market volatility – generally, higher market volatility can lead to higher returns from the covered call strategy. As of the end of October 2024, the ETF’s 30-day SEC yield was 11.39%.

However, distribution amounts can fluctuate significantly; 2024 dividend per share was as high as $0.55686 in September and as low as $0.34167 in February.

Dividends are paid monthly, with the ex-dividend date usually the first trading day of the month and payouts a few days later at the end of the week.

Cost ratio

What is JPMorgan Nasdaq Equity Premium Income ETF’s (JEPQ) expense ratio?

This JPMorgan ETF has an expense ratio of 0.35%, or $35 per $10,000 invested annually. This rate is considered very affordable for an actively managed ETF that involves complex strategies such as using derivatives.

It’s worth noting that this fee is deducted from the ETF’s return on a daily basis behind the scenes, so you’re not paying it directly out of pocket.

Historic achievement

Historical performance of the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)

Performance data for JEPQ is limited, given the recent launch date of this ETF.

Related investment topics

Bottom line

The final performance of the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)

This ETF offers a specific investment profile that may be particularly attractive to those who are bullish on technology stocks but prefer to receive gains in the form of monthly income rather than through stock price appreciation.

It is particularly suitable for investors who can manage their tax inefficiency by keeping it in tax-advantaged accounts such as a Roth IRA.

With an expense ratio of 0.35%, the ETF is an affordable choice to access a strategy that has historically delivered both lower volatility and higher income.

However, investors should be aware of some downsides, such as the potential for maximum returns due to the covered call strategy and the counterparty risk associated with the use of ELN.