Income ETFs: JEPI vs NUSI, QYLD, RYLD — Each generates income using a covered-call strategy. They pay much more than traditional income funds, but are more volatile. If you’re running the right kind of plan, such volatility can be good. You have to know where the funds fit into your overall portfolio strategy.

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This Episode In Article Form

Data as of 2/10/23

Note: The following is not a word-for-word transcript. For that, please see the episode on YouTube.

Ever since I launched my Income Sig plan in January 2022, I’ve received many questions about covered-call ETFs.

My plan uses QYLD, but there are other choices, including JEPI, NUSI, and RYLD. These four, in alphabetical order by symbol, are:

JEPI — JPMorgan Equity Premium Income
NUSI — Nationwide Nasdaq-100 Risk-Managed Income
QYLD — Global X NASDAQ 100 Covered Call
RYLD — Global X Russell 2000 Covered Call

Each generates income to be distributed to shareholders using a covered-call strategy.

This used to be a technique that could benefit only options traders, but these four ETFs and others like them now offer all investors access to this powerful income-producing method.

These funds write call options on the stocks they own. When they sell these options, they generate a profit. The buyer of the option pays a premium. This profit offsets declines in the assets owned by the ETF, which mitigates losses in falling markets. They can still decline, however, as I’ll cover.

The reason to use these ETFs is to generate income. To assess their relative income-generating power, let’s look at their yields, compared with a good general bond fund, iShares Core US Aggregate Bond (AGG):

12-Mo Yield Comparison (%)
– – – – – – – – – – – – – – –

11.5 JEPI
8.7 NUSI
12.8 QYLD
13.0 RYLD

2.3 AGG

The covered-call ETFs boast excellent yields, which is why one of them is in charge of providing regular monthly income payments in my Income Sig plan. That one is QYLD.

Let’s see just how much income these ETFs provide.

We’ll assume you invested $10,000 in each of them at the closing price on December 30, 2022, the last trading day of last year. Here’s how your portfolio would look, with share amounts rounded down to the nearest whole number:

$10,000 Invested at
12/30/22 Closing Prices
– – – – – – – – – – – – – – –

183 shares of JEPI @ 54.49
540 shares of NUSI @ 18.50
628 shares of QYLD @ 15.91
531 shares of RYLD @ 18.81

103 shares of AGG @ 96.99

The following is how much each fund paid per share on its most recent payment date:

Most Recent Amount
Paid Per Share ($)
– – – – – – – – – – – – – – –

0.4439 on 2/6/23 from JEPI
0.1239 on 1/27/23 from NUSI
0.1696 on 1/31/23 from QYLD
0.1956 on 1/31/23 from RYLD

0.2453 on 2/7/23 from AGG

Now, let’s see how much income each fund would have distributed to you on its most recent payment date.

To determine this, multiply the number of shares you own by the amount paid per share. Here’s how that went for our hypothetical portfolio of $10,000 invested in each fund at the end of December:

Most Recent Distributions
from Above Positions ($)
– – – – – – – – – – – – – – –

81.23 on 2/6/23 from JEPI
66.91 on 1/27/23 from NUSI
106.51 on 1/31/23 from QYLD
103.86 on 1/31/23 from RYLD

25.27 on 2/7/23 from AGG

It’s obvious in this comparison how much more income these covered-call ETFs deliver over their more traditional bond-fund peers.

The highest payer in the most recent round was QYLD. Its 106.51 was more than 4 times what AGG paid.

Keep in mind, this higher yield isn’t manna from heaven. There’s a cost, a literal one in the sense that these funds charge higher expense ratios than index funds charge, and they’re not as stable as bond funds.

They’re also nothing like bank accounts. Putting $10,000 into QYLD isn’t the same as parking it in a bank savings account paying 13% annual interest. There’s a lot of price change involved.

Before we get into that, consider the different expense ratios of these funds we’ve been considering:

Expense Ratios (Net %)
– – – – – – – – – – – – – – –

0.60 JEPI
0.68 NUSI
0.60 QYLD
0.81 RYLD

0.03 AGG

As ETFs go, these covered-call types are expensive. An investor in QYLD pays 20 times what an investor in AGG pays.

Of course, it’s been well worth it, considering QYLD’s high yield.

High expense ratios do raise the issue of whether it’s worth holding these covered-call ETFs. Investors who care most about expenses are long-term holders. Traders don’t give expenses much thought.

Even over a long term, however, the math of a higher yield more than compensating for a higher expense ratio works.

The bigger question is whether these funds are suitable as long-term holdings. On their own, probably not. In a plan that takes advantage of their price fluctuation, certainly.

For a look at why, consider their 2022 price change:

2022 Price Change (%)
– – – – – – – – – – – – – – –

-8.2 JEPI
-33.7 NUSI
-28.3 QYLD
-22.9 RYLD

-15.0 AGG

It was an unusual year, a bear market across both stocks and bonds that sent even AGG considerably lower. In most years, however, a general bond fund will fluctuate less than these covered-call ETFs.

JEPI’s relatively small decline in 2022 has investors gathering ’round, but be careful not to curve-fit to the last decline. JEPI is unlikely to pay as much as QYLD, for example, and depending on your way of using it the lower volatility might not be desirable.

JEPI is designed to be less volatile than the S&P 500. It’s an actively managed, defensive equity fund that also runs a covered-call operation. It’s supposed to move less than its index. It’s not doing anything wrong when it rises less and falls less than the S&P 500. It’s doing what’s written on its label.

As for my plans, they prefer price movement, i.e. volatility, in their growth and income funds, because they run quarterly rebalancing programs. In such a scheme, lower prices can be useful. In a year like 2022, when everything goes down, there’s minimal benefit. But most years aren’t like 2022, and anybody investing as if they are will learn this the hard way.

They already are. Year-to-date, JEPI’s price has risen only 0.5% compared with 6.8% for QYLD.

If you’re planning to park money in one of these covered-call ETFs for an extended period, and want to minimize volatility, then JEPI is a good choice.

For more aggressive income seekers or anybody running a systematic approach like my Income Sig plan, QYLD is a better choice. Its most recent distribution was 24% higher than JEPI’s most recent, and it grew the investor’s principal by a considerable 6.8% year-to-date compared with a half percent at JEPI.

Costs are a wash across these covered-call ETFs. All of them cost more than index funds, and much more than bond index funds, but they pay far more. Their extra income more than offsets their higher expense ratios.

If you really want to boost your income portfolio, I recommend my Income Sig plan. It’s more volatile than traditional income portfolios, but pays much more over time. Its key tactic is harvesting growth-fund surpluses as income, but that’s a topic for a different episode.


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