JEPI - JEPI: Beat Inflation With This 11% Yielding Monthly-Paying ETF

Summary

• JEPI is a relatively new equity-focused exchange-traded fund.
• JEPI offers a way to own a diversified S&P 500-centric equity portfolio at a low cost.
• The ETF distributes its income monthly.

Inflation remains a major concern for many passive income investors, and while inflation has slowed in recent months, investors still require investment options in a market that is expected to experience high inflation for some time.

The JPMorgan Equity Premium Income ETF ( JEPI ) , an actively managed exchange-traded fund, is one investment product that passive income investors can use to combat inflation.

The JPMorgan Equity Premium Income ETF provides passive income investors with an active management approach, diversification, a low management fee, and a monthly dividend of 11%.

Because the exchange-traded fund trades at net asset value, passive income investors are not required to pay a net asset value premium.

JEPI Can Help You Fight Inflation

Loose monetary policy and the U.S. government's recent habit of spending money like a drunken sailor have resulted in inflation reaching 40-year highs in 2022.

Inflation hasn't reared its ugly head as viciously as it did in 2022, and it's likely to stick around for a while longer. At its peak in June, consumer prices rose at an annual rate of 9.1%, but even though it has since fallen to 6.4% in January 2023, passive income investors must consider inflation as a key factor when making investment decisions.

It is critical for investors to achieve a rate of return that exceeds the rate of inflation, because otherwise, they will only get poorer. Inflation eats away at wealth and investment returns, and since there is no greater challenge right now than outperforming above-average inflation rates, I believe investment products that combine diversification with a high yield are appealing options for passive income investors.

This is where the JPMorgan Equity Premium Income ETF enters the picture.

The fund's goal is to generate recurring income from a broadly diversified portfolio of high-quality large cap stocks represented by the S&P 500 stock index.

Furthermore, the exchange-traded fund is permitted to sell S&P 500 Index call options in order to generate additional income that is distributed to ETF investors on a monthly basis in addition to dividend income generated by the underlying stock portfolio.

Exxon Mobil Corporation ( XOM ) , Comcast Corp. ( CMCSA ) , Visa Inc. ( V ) , and the Coca-Cola Company ( KO ) were among the ETF's top ten holdings as of the end of January 2023. The largest investment accounted for less than 1.6% of fund assets, indicating that the ETF is well-diversified.

The ETF presently has approximately $21 billion of assets invested in its portfolio.

I believe that allocating to JEPI has four advantages for passive income investors. These four benefits are as follows:

1. Passive income investors can own a diverse, S&P 500-focused investment portfolio for a low cost (0.35% net expense fee ratio).
2. The ETF's current dividend yield of 11% outperforms the running inflation rate by a significant margin.
3. The exchange-traded fund's option strategy may generate additional income that is distributed to shareholders.
4. The JPMorgan Equity Premium Income ETF pays a monthly dividend.

JEPI Is Trading At A 0% Premium To Net Asset Value

Exchange-traded funds are primarily valued based on their underlying net asset value. As of February 17, 2023, JEPI had a reported net asset value of $54.90 per share , which was equal to its market price. As a result, investors do not pay a premium to net asset value to own the underlying S&P 500-centric investment portfolio of the JPMorgan Equity Premium Income ETF. JEPI has traded at either very low premiums or discounts to net asset value over the last year.

Why JEPI Could See A Lower Valuation

Due to the fund's inception date of May 20, 2020, JEPI lacks a long-term return performance record, which some investors may consider a disadvantage.

The JPMorgan Equity Premium Income ETF is subject to significant equity market risk due to its reliance on blue chip stocks that generate dividend income that is passed on to JEPI investors.

Dividend reductions caused by a slowing economy or a recession will thus affect investors in the JPMorgan Equity Premium Income ETF.

My Conclusion

For investors concerned about inflation, it makes sense to invest a small portion of their assets in the JPMorgan Equity Premium Income ETF.

Despite having a relatively short track record in the public market, the ETF provides passive income investors with access to a diversified portfolio of high-quality dividend-paying blue chip companies.

I believe JEPI offers investors the opportunity to own an S&P 500-focused investment portfolio at a low cost while maintaining diversification. JEPI currently yields 11% and distributes a monthly dividend to ETF investors.

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