Validus’ First ETF Turns JEPI Formula on Its Head

Validus Risk Management, a New York investment manager, issued its first ETF with a strategy that turns JPMorgan Chase & Co.’s popular JEPI on its head. 

The new exchange-traded fund hedges risk and generates income using options like the $28.9 billion JPMorgan Equity Premium Income ETF (JEPI). Validus’ fund, the Cboe Validus S&P 500 Dynamic PutWrite Index ETF (PUTD), instead sells put options, which are options to sell a stock at a particular price. 

The fund began trading Aug. 10 and has since gained 1.4%.  

More than 200 ETFs use call options—which let the holder buy an asset at a particular price—to generate income and hedge risk. JEPI, which launched in 2020, is the biggest options ETF, and became the largest actively managed ETF in the U.S. earlier this year. 

The Validus fund tracks an index the firm created with Cboe. Market conditions are assessed five times a month, and one-fifth of the portfolio is adjusted each time. The goal is to be nimbler than ETFs that change their portfolio once a month, by instead steadily swapping over positions as market conditions change. The fund’s aim is to use options to generate income when the market is flat and capture some of the gains when the market is growing. 

“The fund differs from other option ETFs because its continual rebalancing during the month lets it adapt to market conditions,” said Kambiz Kazemi, chief investment officer of Validus Risk Management. 

The fund’s 0.60% expense ratio negates one of the main advantages of index funds, being cheaper than active alternatives. For example, JEPI’s expense ratio is 0.35% 

Performance in a Calmer Market 

The fund aims to capture market gains up to about 8%-10% a year, but the market has returned much more than that annually for much of the last decade. Market returns between 2010 and 2022 were more than double the historical average going back to 1962.  

Kazemi doesn’t think these historically high stock market returns are going to last: “We think the equity risk premium is going to be compressed.” 

Markets haven’t moderated so far this year. The market, measured by the SPDR S&P 500 ETF Trust (SPY), has returned 16% year to date. 

 
Contact Gabe Alpert at [email protected]