The older I get, the more I focus on securing my retirement. I'm concentrating my retirement account on investments that generate passive income and can deliver compelling price appreciation with less volatility. While this strategy might cause me to miss some upside potential, it helps me not lose sleep at night, knowing that my retirement remains on track.
I recently added a new investment to my retirement account that I believe can enhance my ability to reach my retirement goals: JPMorgan Nasdaq Equity Premium Income ETF (JEPQ 0.04%). The exchange-traded fund (ETF) offers a high dividend yield and upside potential with lower volatility. I'm starting small in what could become a cornerstone investment in my retirement account.
What is the JPMorgan Nasdaq Equity Premium Income ETF?
The JPMorgan Nasdaq Equity Premium Income ETF has a simple mission: It aims to provide investors with consistent premium income with lower volatility. It certainly delivers a premium income yield these days:
Data source: JPMorgan Asset Management.
As that chart showcases, the ETF has delivered a monster 9.2% income yield over the last 30 days, providing investors with more income than they could have collected by investing in high-yield bonds (i.e., junk bonds). Meanwhile, the dividend yield has been even higher (10.8%) over the last 12 months.
The ETF makes monthly distributions to its investors. They vary from month to month based on the income the ETF generates:
JEPQ Dividend data by YCharts
The actively managed fund charges investors a fairly reasonable ETF expense ratio of 0.35%. That competitively priced management fee enables investors to keep more of the income the fund generates.
How the JPMorgan Nasdaq Equity Premium Income ETF generates returns
The JPMorgan Nasdaq Equity Premium Income ETF has a two-pronged investment strategy:
- Underlying equity portfolio: The fund's managers employ an applied data science approach to fundamental research and portfolio construction to craft a high-quality equity portfolio.
- Disciplined options overlay strategy: The fund writes out-of-the-money call options on the Nasdaq-100 index. This strategy seeks to generate distributable monthly income for fund investors.
The fund's main income-generating strategy is selling call options on the Nasdaq-100, an index filled with growth stocks. It tends to be more volatile than the S&P 500. However, volatility benefits fund investors because it allows the fund to generate higher options premium income by writing calls on the index. This dynamic is why the ETF offers a higher yield than its sister fund, JPMorgan Equity Premium Income ETF, which writes call options on the S&P 500.
The other aspect of this fund's strategy is holding a portfolio of stocks. It currently has 97 holdings (which include options), led by:
- Microsoft: 7.4% of its net assets
- Apple: 5.7%
- Nvidia: 5.6%
- Amazon: 4.8%
- Alphabet: 4.4%
While these top tech stocks also rank among the largest holdings in the Nasdaq-100, the fund doesn't aim to track that index. It holds stocks based on its data-driven, fundamental approach.
The fund's portfolio provides investors with equity upside. However, while it tends to hold more volatile stocks, it offsets that volatility by selling call options on the Nasdaq-100 index, which generates income while reducing the volatility. This strategy enables it to produce steadier returns.
A great addition to my retirement portfolio
I'm excited to add the JPMorgan Nasdaq Equity Premium Income ETF to my retirement account. The fund should supply me with a premium monthly income stream that I can reinvest until I'm ready to retire. On top of that, it should deliver price appreciation with low volatility to help grow my account value. These features will likely make this an ETF I regularly buy as I work toward retirement.
