The JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ) is one of the most exciting ways for retail investors to access a high-yield strategy that also provides exposure to some of the leading technology companies, like Nvidia. It’s an intriguing option that genuinely offers investors something different in the world of high-yield investing.
Here’s why shares of this exchange-traded fund could be ideal for your portfolio.
It’s not difficult to be a high-yield investor. Use a few stock screeners or look for a typical high-yield ETF; you could become one in a few minutes. Still, anyone who has done this will note a few recurring themes. A lot of the stocks with generous yields tend to be in the same sector, or they tend to be more mature low-growth companies with low-single-digit growth profiles whose sole attraction is their yield.
That’s all fair enough if you don’t care about diversifying away from being overweight in a particular sector or aren’t worried about investing primarily in low-growth cash-cow-type stocks. However, the ETF I’m talking about today offers something different, and a quick look at its five largest holdings — all in the tech sector — and their dividend yields tells you that. Though never forget that dividend payments and high yields are not guaranteed.
A slightly more extended look at the holdings tells you that this ETF is definitely not generating its monthly distribution — currently delivering an annualized yield of 9.6% — from the dividends of its top equity holdings, as their yields are low.
Stock
Market Cap
Current Dividend Yield
Portion of JEPQ’s Net Assets
Nvidia
$3.56 trillion
0.03%
7.65%
Apple
$3.48 trillion
0.44%
7.21%
Microsoft
$3.09 trillion
0.80%
6.42%
Amazon
$2.09 trillion
N/A
4.55%
Meta Platforms
$1.42 trillion
0.35%
4.25%
Data source: JPMorgan Asset Management.
To generate income and distribute it to investors, the JPMorgan Nasdaq Equity Premium Income ETF invests significantly in equities within the Nasdaq-100 index and in equity-linked notes (ELN) that sell call options on the Nasdaq-100 index. That Nasdaq-100 includes the 100 largest non-financial companies listed on the Nasdaq Stock Exchange.
At least 80% of the ETF’s assets go toward equities, and, as noted in its prospectus, “securities are not selected based on anticipated dividend payments.” As such, this is not an ETF loaded with high-yield stocks operating in a few sectors, such as energy, telecommunications, or large-cap pharma. Up to 20% of assets go toward the ELN strategy.
Image source: Getty Images.
A call option is a financial instrument sold for a premium that gives a bullish investor the right to buy the Nasdaq-100 index at a specified price (the strike price) within a designated period. Investors buy call options hoping the index rises above the strike price so they can buy the index at the strike price and earn the difference between the strike price (plus the cost of the premium) and the current price. If the index doesn’t rise above the strike price, the option lapses, and the call option buyer loses the premium.
It follows that the call option seller (de facto, the ETF) earns the premium when the market doesn’t rise above the strike price.
The table below helps roughly illustrate the dynamics of this ETF’s strategy. Equities will likely lose money in a bad month for the Nasdaq, while the ETF will pick up income from the ELNs. That helps reduce the ETF’s downside exposure to stocks trading on the Nasdaq.
On the other hand, in a strong month for the Nasdaq, equities are likely to make money, but ELNs will lose money, so the ETF’s upside is limited. Meanwhile, a moderate gain or loss on the index will lead to the ETF picking up premiums on the ELN strategy. As such, you can think of the ETF as having upside exposure to the Nasdaq, with the downside limited by the ELN strategy and the potential for a stream of income from the latter.
Monthly Performance on the Nasdaq-100
Strong Gain
Moderate Gain
Moderate Loss
Strong Loss
Equities (at least 80% of the ETF assets)
Profit
Profit
Loss
Loss
ELNs (up to 20% of the ETF assets)
Loss
~Profit
Profit
Profit
Author’s analysis.
The qualities of this ETF are reflected in its performance. As the chart below demonstrates, the JPMorgan Nasdaq Equity Premium Income ETF’s price performance is nothing to write home about. Still, after accounting for the dividends and reinvesting them (total return), the ETF’s performance is much more impressive.
Moreover, the downside-limiting property of the ETF was demonstrated in the following yearly period, when the Nasdaq-100 declined.
This ETF offers a lower-volatility way to invest in technology stocks and simultaneously earn a hefty monthly income. It will suit investors with a high-yield portfolio looking to diversify away from highly concentrated sectors or styles.
Before you buy stock in JPMorgan Nasdaq Equity Premium Income ETF, consider this:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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