At the time of this writing, the Nasdaq Composite index is experiencing a ferocious bear market, cratering nearly 25% from its peak late last year. The sell-off has intensified recently due to growing concerns about how the Trump administration's "reciprocal tariff" policies will affect the global economy. Many economists and financial experts are increasingly concerned that they could spark a global trade war that could ignite a recession.
The market volatility could last a while. That's one reason why I've been loading up on the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ +0.17%). The exchange-traded fund (ETF) enables investors to benefit from the upside potential of the Nasdaq-100 with less volatility. One way it does that is by distributing income to investors each month. With the ETF's price falling alongside the market, I expect to generate more income and higher returns from this position in the future.
Exposure to the Nasdaq-100 with less volatility
The JPMorgan Nasdaq Equity Premium Income ETF has a dual mandate. The fund aims to provide investors with a monthly income stream. It also seeks to give them exposure to the upside of the Nasdaq-100 with less volatility.
The fund has a two-part strategy to achieve this goal:
- Underlying equity portfolio: The fund's managers use an "applied data science approach to fundamental research" to construct a portfolio based on the Nasdaq-100. It holds many of the stocks in that index, though it doesn't match the index's allocation.
- Disciplined options overlay strategy: The fund writes (sells short) out-of-the-money (above the current price) call options on the Nasdaq-100 index. By writing options, the fund generates premium income (it gets paid the option's value, known as its premium). It distributes this income to investors each month.
The fund aims to deliver similar upside to the Nasdaq-100 index. The ETF outperformed that index in the fourth quarter of 2024. Contributing to its outperformance in the period was a higher weighting to Marvell Technology, which had a strong quarter due to the significant growth of its data center segment. The fund also benefited from a lower weighting to Applied Materials, which slumped in the period due to concerns about its guidance for the upcoming quarter.
The ETF has also delivered a better relative performance during the Nasdaq's plunge this year.
A lucrative income stream
The other factor contributing to its higher relative total return compared to the Nasdaq-100 is the options premium income the fund generates and distributes to investors. This income fluctuates from month to month based on the amount of income it collects from writing options on the index. What's notable about options premiums is that market volatility is one of the things that factors into the price. As market volatility increases, options premiums rise. Because of that, the income generated by this fund should increase in the near term, which should support higher monthly distribution payments.
The fund already offers a lucrative monthly income stream. As the chart below shows, it has a much higher yield relative to other asset classes.
Image source: JPMorgan Asset Management.
That already high yield will likely be even more lucrative as the fund capitalizes on the increased volatility to generate more options income in the current environment. This income will help provide a tangible return to help further offset the decline in the ETF's value during the market sell-off. Meanwhile, even when volatility eventually subsides (which it always does), the fund should still produce lucrative monthly income, especially from the lower level that I added to my position.
A lower-risk way to invest in the Nasdaq
The current bear market in the Nasdaq is the perfect opportunity to load up on the JPMorgan Nasdaq Equity Premium Income ETF. The fund provides a less volatile way to invest in the index, which offers high return potential. It also pays a lucrative monthly income stream, giving me a tangible return and cash flow to reinvest as other opportunities emerge. I plan to continue buying shares of the ETF if the Nasdaq keeps falling, to boost my income and future return potential when the market eventually recovers.
