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JPMorgan Equity Premium Income ETF (JEPI) and JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) are two popular, high-yield monthly pay, diversified ETFs that have become very popular with income investors, as evidenced by their rapidly rising assets under management since launching just a few years ago:
In this article, we will compare them side by side to see which one will be a better addition to a diversified high-yield portfolio.
JEPI Vs. JEPQ Comparison
Their expense ratios are identical, standing at a reasonable 0.35% given what these funds provide, which is a semi-actively managed strategy that implements notional covered calls to generate outsized monthly income. This saves investors significant time and effort that would be necessary to replicate a similar strategy on their own.
In terms of their yields, JEPI has a 180-basis point advantage on a trailing 12-month basis in their dividend yield payouts (9.49% to 7.69%). This is likely due to their greater concentration in the mega-cap tech space, and the bullish sentiment in the sector has recently led to them getting larger options premiums on their sales of covered calls. Moving forward, however, this could easily shift, so we do not draw too many conclusions from JEPQ’s higher trailing twelve-month yield. Moreover, JEPQ has significantly outperformed JEPI since JEPQ’s inception, but once again, this is entirely fueled by strong artificial intelligence mania-driven outperformance in mega-cap technology stocks.
Given that markets fluctuate over time, we do not necessarily expect this outperformance to continue over the long term.
As you can see from their holdings, JEPQ is much more concentrated in technology than JEPI, with nearly 50% of its portfolio invested in technology stocks, followed by 16.11% in communication stocks, 13.51% in consumer cyclical stocks, and the remainder of the portfolio allocated in small amounts to a smattering of other sectors including healthcare, consumer defensive, industrials, basic materials, and utilities.
JEPQ Holdings (Seeking Alpha)
Meanwhile, JEPI is well diversified with less than 20% allocated to technology, even though that is still its largest sector. It also has substantial exposure to industrials at 14.39%, healthcare at 13.71%, financials at 12.55%, and consumer defensive at 10.63%. It rounds out its portfolio with single-digit percentage exposures to consumer cyclical, communication, utilities, energy, real estate, and basic material sectors.
JEPI Holdings (Seeking Alpha)
In terms of top 10 holdings, JEPI is also much more concentrated as its portfolio has 7.43% exposure to Microsoft (MSFT), 5.70% exposure to Apple (AAPL), 5.34% exposure to Nvidia (NVDA), and another nearly 5% exposure to both Meta (META) and Alphabet (GOOGL). Overall, such holdings constitute a whopping 40.72% of its total portfolio.
In contrast, JEPQ is much better diversified with only 15.84% of its portfolio allocated to its top 10 holdings, with just 1.72% allocated to its top single holding, Progressive Corporation (PGR).
Investor Takeaway
Several months ago, we compared them side by side to see which one would be a better fit for a standalone high-yield fund and concluded that JEPI was better than JEPQ because it was better diversified and therefore more likely to generate stable dividends throughout the business cycle.
Additionally, the strong run-up in mega-cap technology stocks (QQQ) recently has made us increasingly cautious about taking on outsized exposure to that sector. For those two reasons, if we could only hold one ETF, we would prefer JEPI to JEPQ. As we stated at the time:
while JEPQ may have outperformed JEPI in the short term, the latter’s diversified approach might make it a more attractive investment in the current market environment, especially for those who are cautious of an impending economic downturn and leery of the current high valuation of tech stocks. JEPI’s stability and diversification should better position it to navigate potential market corrections, making it a prudent choice for investors seeking to mitigate risk while still generating significant monthly passive income.
However, if we were trying to build a diversified portfolio of high-yield stocks and funds and were simply looking to add one of these two ETFs as a complementary piece, we would prefer JEPQ because it is impossible to find high-yield stocks in the mega-cap technology space. As a result, JEPQ would round out our portfolio better by providing concentrated exposure to the mega-cap tech space that our portfolio would otherwise lack while still generating a high-income yield.
