XLY - JEPQ: 2 Key Reasons To Avoid This ETF For Now
2024-01-23 21:30:55 ET
Summary
- Historically, we've expressed disdain for option-enabled, high-income funds that use covered calls and derivative strategies to generate yield.
- Funds that sell covered calls on their holdings can experience realized losses if options expire in the money, leading to a slow decline in fund assets over time.
- Today, we're analyzing JEPQ, a relatively new ETF from JPMorgan that follows a similar strategy to JEPI but on a more volatile underlying index - the Nasdaq 100.
- We're not confident management can navigate this challenge, especially in today's historically poor IV pricing environment.
- We rate JEPQ a 'Sell'.
Here on Seeking Alpha, we've made no secret of our disdain for option-enabled, 'high income' funds that utilize covered calls and other derivative strategies to generate a high level of "yield" for investors.
In the past, we've written a number of articles on the topic, which you can review here:
- QYLD: The Yield Is A Mirage
- QYLD: Substandard Returns Set To Continue
- QYLD: Stop Buying This ETF
- JEPI: Decaying Earnings Power A Long Term Problem
- TSLY: Good In Theory, Disastrous In Practice