JEPI, JEPQ Are More Than Income ETFs, Reiner Says

JEPI, JEPQ Are More Than Income ETFs, Reiner Says

Reduced volatility make these strategies suitable for conservative investors.

Reviewed by: Staff
Edited by: Ron Day

While well-known among income-focused investors, managers of the massively popular JPMorgan Chase & Co. ETFs JEPI and JEPQ say the funds are capable of playing other positions in a portfolio.

Since it was launched in 2020, the JPMorgan Equity Premium Income ETF (JEPI) has ballooned to $33.7 billion in assets, while its smaller cousin, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) has grown to $14.8 billion since its 2022 debut, making the options-based strategy one of the most-successful ETF fund launches in recent history. 

These funds use puts and calls to help limit losses, although investors can still lose money, while capping upside gains. Year-to-date JEPI is up 6.24% and JEPQ is up 15%. Both JEPI and JEPQ have enjoyed sizable inflows this year. Investors have plowed into JEPQ with a vengeance, with funds reaching $977.8 million year-to-date, while JEPI took in a tidy $180.2 million.

Comparatively, the SPDR S&P 500 ETF Trust (SPY) is up 15% and the Invesco QQQ Trust (QQQ) is up 17%. Looking at flows, SPY has seen outflows of $25.5 billion, while QQQ’s flows are up $13.8 billion.

JEPI was launched in 2020 when interest rates were near zero, but even with short-term Treasury ETFs yielding about 5%, these options-based strategies continue to draw adherents.    

Hamilton Reiner, portfolio manager at J.P. Morgan Asset Management and portfolio manager for the asset manager’s options-based strategies, says JEPI’s income target is to return 7% to 9%, while JEPQ the income target is 9% to 11%.

Reiner says the high-octane income may grab the headlines, but these funds also allow investors to be conservative equity investors, which is a less-known attribute.

“Having less volatility and less beta is one of the nice added benefits that never gets credit (in these) strategies,” Reiner says.

Reiner spoke Wednesday at the Morningstar Investment Conference in Chicago about options-based strategies.

Reiner's 'Personal Report Card' for JEPI, JEPQ

Because of the conservative nature of these strategies, he believes they can play a role in any investor’s portfolio. His purpose in managing of these funds, or what he calls “his personal report card” is five-fold:  

  • deliver above-average income
  • produce a better Sharpe ratio
  • positive upside/downside capture ratio, relative to the market
  • good total return.  
  • less volatility than the broader market.  

The goal of a strong total risk-adjusted return with less volatility would allow these funds to occupy a core position in a 60%-40% stock/bond portfolio by replacing part of the equity and part of the fixed income portion, he says.

“It's not meant to replace your equities. What it's meant to do is to add more balance and more total return with the same type of risk profile,” he says.

JEPI, JEPQ as Risk Management Tools

Alex Zweber, managing director at Parametric, who also spoke on the panel, says because of the conservative nature of these funds, they can be a good option for investors concerned about the risks of being fully invested in stocks. He says these funds can help investors stay in the market, but with less than full exposure.

“It might be (for) someone who’s ridden the equity wave and wants to take some chips off the table, or maybe this investor doesn't need to get rich, or wants to stay rich and never had that buffer. Likewise, the other side of that, it might be (for) someone who's missed out on some of the rally and wants to maybe dip their toes in the equity market in a reduced risk,” Zweber says.

Given the success of funds such as JEPI and JEPQ, there’s always the allure of expanding the options-based strategies to other markets, such as one based on international equities. The asset manager launched a version of JEPI in Europe as a UCITS ETF last year. While investing in international markets in a conservative way could be a good fit, Reiner says his team is judicious about launching new products.

“It's not about checking every style box… It is really finding those opportunities to partner with CIOs (chief investment officers), portfolio managers and financial advisors, who can deliver differentiated outcomes. It's not about how many, it’s about something that is interesting to our partners. That's how we actually think about innovation,” Reiner says. 

Debbie Carlson focuses on investing and the advisor space for U.S. News. She is an internationally published journalist with bylines in publications including Barron's, Chicago Tribune, The Guardian, Financial Advisor, ETF Report, MarketWatch, Reuters, The Wall Street Journal and others.