FEPI Boosts Payouts Amid Surging Inflows
The covered call fund’s assets have more than doubled this year on tech bets.
REX Shares is boosting the distribution rate of FEPI, its only exchange-traded fund, which has pulled in millions from investors since it launched in October with a strategy similar to JPMorgan’s popular JEPI.
The $37.6 million REX FANG & Innovation Equity Premium Income ETF (FEPI) will distribute $1.20 a share to holders, a nearly 26% rate, the company announced yesterday. That’s up from previous distributions of $1.18 and $1.15.
Boosting the payout comes as investors have more than doubled FEPI’s assets under management this year, adding $26.5 million to the fund that’s experienced next to zero in outflows, according to etf.com data. The far larger, $31 billion JPMorgan Equity Premium Income ETF (JEPI), which also follows a covered call strategy, has been boosting its dividend, from 29 cents a share in August to about 43 cents in December.
A covered call ETF strategy intends to generate income for investors, in which they sell call options on a security they own in exchange for a premium. The premium received from selling the call option provides additional income for the investor.
FEPI Holds Gaining Netflix Shares
Investing in volatile tech stocks may boost income, and FEPI’s top holdings include Palo Alto Networks Inc., Broadcom Inc. and Apple Inc. The fund also holds Netflix Inc., whose stock jumped today after reporting positive quarterly results.
“The more volatile the underlying stocks, the more income you can generate by writing calls,” etf.com senior analyst Sumit Roy said. “That's good for FEPI.”
While FEPI has gained 3.3% this month, the broader tech stock ETF Technology Select Sector SPDR Fund (XLK) has added 4.7%.
“The trade-off is you give up some upside if the underlying stocks go up a lot, which they have been doing recently,” Roy said
Covered call ETFs hold $56.1 billion in 263 U.S. traded funds, according to etf.com data. They’ve attracted $65 billion in net inflows over the past three years, Morningstar analysts wrote in a Jan. 22 note.
