Is JEPI Too New to Trust?

Is JEPI Too New to Trust? — If JEPI had a decade of data, would you trust it more? Probably not much.

Record your investing question at 303-747-4428.


This Episode In Article Form

Data as of 3/3/23

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

Sunil in Jacksonville, Florida had more questions about JEPI, the JPMorgan Equity Premium Income ETF, which I compared with QYLD and other income ETFs in my February 15 episode.

Summary of Sunil’s voicemail recording:

There’s been a lot of buzz about JEPI. I have two questions:

1. How is it better or worse when compared with other similar ETFs, such as QYLD.

2. It’s new. Do we have enough historical data to trust it?

For the first question, please listen to my February 15 episode, which is all about how JEPI compares with QYLD and other income ETFs. The title of the episode is: “Income ETFs: JEPI vs NUSI, QYLD, RYLD”, thus, exactly what you’re looking for.

A quick recap here is that 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 through March 3, JEPI’s price has fallen 0.8% compared with a 4.6% gain 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. If you’re looking for more aggressive income and don’t mind more volatility or, better yet, are running a plan like my Income Sig that uses volatility in a rebalancing scheme, then QYLD is better.

As for whether we have enough historical data on JEPI to trust it, I think so.

Income ETFs are going through lots of innovation recently, with many new funds trying different techniques. JEPI is among these, writing out-of-the-money S&P 500 Index call options to generate monthly income. There’s nothing particularly exotic about this. It’s more complicated than many investors want to manage on their own, but that’s why it could be worth paying JEPI to do it. Call options are a good way to generate income.

JEPI began operations on 5/20/20. We’re coming up on three years of data, which already show us a reasonable amount of price volatility and 33 straight months of distributions. That’s enough time to see it doing what it’s trying to do, and over a sufficiently volatile time frame.

If JEPI had a decade of data, would you trust it more? Probably not much, because past results are not indicative of future ones. You don’t need all that much of a time frame to see whether a technique is working or not, and it seems that JEPI’s is.


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