JEPI - JEPI: 11% Yield Monthly Payer Vs. Alternative S&P High Yield Funds

Summary

• JEPI's forward yield is 13.38%, and its trailing yield is 10.57% - it pays monthly.
• We compare JEPI to other S&P-based high yield ETFs and CEFs.
• Performance/Total Return, Dividend Yields, Price Discounts, and Expenses are covered in this article.

Looking for a way to harness volatility and add some defense to your portfolio? Maybe you should consider using covered call/buy-write funds in order to accomplish this.

This article will focus on S&P-500-based covered call funds, which seek to enhance yield and/or lessen volatility via covered calls.

The JPMorgan Equity Premium Income ETF ( JEPI ) is one of the more heavily-traded covered call funds. It's a relatively new fund - it IPO'd in May 2020.

Profile:

JEPI:

"Seeks current income while maintaining prospects for capital appreciation. The fund seeks to provide the majority of the returns associated with its primary benchmark, the S & P 500 Total Return Index, while exposing investors to less risk through lower volatility and still offering incremental income.

JEPI usually invests at least 80% of its assets in equity securities, but it may also invest in other equity securities not included in the S&P 500 Index. The fund "generates income through a combination of selling options and investing in U.S. large cap stocks, seeking to deliver a monthly income stream from associated option premiums and stock dividends."

(JEPI site )

JEPI & Other S&P Covered Call Funds:

There are many other S&P-based buy/write funds in the market. JEPI is the newest and largest of these funds, with a 5/20/20 inception date, assets of $17B, and daily average volume of 3.4M shares. JEPI also has the lowest expense ratio in the group, at 0.35%.

We have one other ETF, the Global X S&P 500 Covered Call ETF ( XYLD ), which was founded in 2013, and 4 Closed End Funds (CEFs) in this group, which were founded in 2004-2005:

• Eaton Vance Tax-Managed Buy-Write Income Fund ( ETB )
• Nuveen S&P 500 Buy-Write Income Fund ( BXMX )
• Nuveen S&P 500 Dynamic Overwrite Fund ( SPXX )
• BlackRock Enhanced Capital & Income Fund ( CII )

XYLD is the 2nd largest fund in this group, at $2B - it also pays monthly, has 505 holdings, a low 0.60% expense ratio, and daily average volume of 3.4M shares.

The BXMX CEF is the 3rd largest fund, with $1.3B in assets, 254 holdings, and 189K in daily average volume.

CII holds $763M in assets, with just 56 holdings, and 102K in average volume, followed by ETB, with $379M in assets, and 69K in volume, 172 holdings, and a 1.1% expense ratio.

SPXX is the smallest fund in the group, with $262M in assets, a .89% expense ratio, 528 holdings, and 47K in average volume.

BXMX and SPXX pay quarterly, while the other 4 funds pay monthly:

Dividends:

JEPI pays a variable monthly distribution, so we looked at its dividend yield on a trailing and forward basis. Its current trailing dividend yield is 10.57%, while its forward yield is much higher, at 13.38%. It should go ex-dividend next on ~2/1/22, with a ~2/4/22 pay date.

JEPI has the highest forward yield in the group, followed by XYLD, which has the highest trailing yield. ETB decreased its monthly payout from $.1080 to $.0932 in November 2022 - its forward yield is 7.54%, followed by SPXX, at 7.41%, BXMX, at 7.17%, and CII, at 6.49%:

Performance:

The sector performance of the S&P 500 still shows Energy as the #1 sector in 2022, a slot it has occupied all year. Energy was up 39.6% in 2022. Utilities were #2, at -1.61%. Tech was a big loser, down ~34%.

Unfortunately, JEPI only has minimal, 2.7%, exposure to Energy. Its largest sector exposure is Industrials, at 13%, vs. an 8.6% Industrials weighting in the S&P. JEPI also had a heavier weighting in Consumer Defensive, at 11.9%, vs. 6.86% for the S&P, and Utilities, at 7.8%, vs. 2.78% for the S&P.

Those heavier-than-S&P sector weightings benefited JEPI, as those sectors outperformed the market.

On the flip side, JEPI was underweight Tech, but still held 11%, which hurt its performance, with Tech down -34%. Consumer Cyclicals, Communications Services were also underweight sectors for JEPI which fell -37% and -40%, respectively:

JEPI has held up the best in 2022 and over the past quarter, outperforming the market in 2022, but still down -12.49%, vs. -19.70% for the S&P, as of 12/28/22.

On an approximate total return basis, including its dividend yield, JEPI outperformed all of the other funds, returning ~-1.4%, vs. -18.4% for the S&P 500.

SPXX was #2, at -4.63%, followed by CII, at -7.66%, XYLD, at -9%, ETB, at -12.77%, with BXMX finishing last, at -14.55%:

Holdings:

JEPI also invests in Equity-Linked Notes (ELNs), which it utilizes for income:

"The Fund may invest up to 20% of its net assets in ELNs. ELNs are structured as notes that are issued by counterparties, including banks, broker-dealers or their affiliates, and that are designed to offer a return linked to the underlying instruments within the ELN. ELNs in which the Fund invests are derivative instruments that are specially designed to combine the economic characteristics of the S&P500 Index and written call options in a single note form." (JEPI site)

JEPI's top 10 holdings include small amounts, 1.5% to 1.6%, of familiar large cap stocks AbbVie (ABBV), Bristol Myers Squibb (BMY), UnitedHealth (UNH), Progressive (PGR), Coca-Cola (KO), and Hershey (HSY), totaling ~15% of its total portfolio.

Valuations:

Unlike CEFs, ETFs generally sell at prices close to their NAV/share values, as you can see with JEPI's and XYLD's 12/28/22 Price/NAV.

Since CEFs can sell at wide discounts or premiums over the years, it can be a useful strategy to compare their current Price/NAV vs. their historical averages.

In this group, ETB has the biggest spread between its 12/28/22 Price/NAV of -0.31%, and its 1-, 3-, and 5-year premiums to NAV of 8.76%, 4.82%, and 4.23%.

Parting Thoughts:

With the Fed looking to keep raising its rate in 2023, JEPI could be a useful tool for gaining some protection for your portfolio. However, if the Fed backs off in the 2nd half of the year, the S&P could rally, in which case, having S&P-based covered calls could crimp your upside potential.

If you have a current favorite Covered Call fund, we'd like to hear about in the comments section of this article.

All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.

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