Superstar JEPI Loses Luster After Underperforming

The superstar exchange-traded fund known as the JPMorgan Equity Premium Income ETF (JEPI) registered a rare outflow late last week. On Friday, investors pulled $147 million out of the fund—the first retreat in three weeks and the second-largest outflow ever for the three-year-old fund. 

Source: Bloomberg 

For an ETF that’s pulled in over $9 billion of fresh cash this year, $147 million may not seem like much, but it’s notable: It’s only the fourth daily outflow for the fund this year.  

The outflow could have come for any number of reasons, and it’s probably best not to read too much into this one data point.

But I couldn’t help notice the performance difference between JEPI and the vanilla SPDR S&P 500 ETF Trust (SPY) widened significantly last week. After outperforming by around 5%, SPY is beating JEPI by nearly 10% today.  

Source: Bloomberg 

Of course, the two ETFs aren’t direct competitors. JEPI is designed for investors who want a smoother ride—low-volatility stocks and the income that comes from a covered call strategy. 

But you can’t discount how much impact performance has on flows.  

JEPI’s ascent to superstardom came in an environment in which it was either outperforming or at least staying in the same ballpark as the S&P 500. In its first full year on the market in 2021, it picked up inflows of $5.4 billion while delivering a 21.5% total return versus 28.8% for SPY. 

Last year, inflows rocketed to $12.8 billion, as the ETF lost only 3.5% versus an 18.2% decline for SPY. 

Source: etf.com 

And so far this year, it gathered more than $9 billion in new assets while returning around 5% less than the S&P 500—until now. 

Now with the performance gap widening, I can’t help but wonder if we’ll see more outflows like the one we saw on Friday. 

Low-volatility stocks and covered call strategies tend to outperform in flat-to-declining markets. If the rally in the S&P 500 accelerates, we could see more investors jump off the JEPI train.  

Contact Sumit Roy at [email protected]