JEPI vs JEPQ: Comparing J.P. Morgan’s Covered Call ETFs

This article compares JEPI vs JEPQ — J.P. Morgan’s Equity Premium Income ETF vs. J.P. Morgan’s Nasdaq Equity Premium Income ETF. 

Both are actively managed ETFs popular with dividend investors and retirees looking to earn yields above total market ETFs such as VTI and popular dividend ETFs.

The funds aim to seek current dividend income while maintaining the prospects for price appreciation.

JEPI and JEPQ are covered call ETFs. The funds hold undervalued stocks in their respective benchmark indexes and sell covered calls (a basic and low-risk option strategy) against the benchmark indexes to generate income for investors via equity-linked notes (ELNs). It’s a bit confusing; we’ll dig in more below. 

The funds deploy a nearly identical strategy. The main difference between the funds is their benchmark indexes. 

JEPI holds stocks in Standard & Poor’s 500 Total Return Index (S&P 500 Index). JEPQ holds stocks in the Nasdaq-100 Index. 

Each fund pays a monthly dividend with annual yields (~10%+) significantly higher than broad index funds tied to the market indexes. Therefore, investors should consider owning JEPI and JEPQ in tax-advantaged accounts such as a traditional or Roth IRA to avoid dividend taxation. 

Bottom Line Upfront (BLUF)

Before I get into the details of JEPI vs JEPQ, it’s essential to keep the following in mind:

• The funds deploy the same strategy. However, the benchmark indexes vary. Each fund holds many of the largest U.S. blue-chip companies.
• JEPI has a broader pool of stocks from which to choose. JEPQ is Nasdaq-only and has a high percentage of assets in the top 10 holdings (concentration risk).  
• Covered call ETFs are a relatively new category. JEPI is older, more established, and has more assets under management than JEPQ. 
• JEPQ has outperformed JEPI since JEPQ’s inception (see chart below for the latest). But both funds are immature. Past performance is not indicative of future returns.
• Both ETFs are available to purchase from any online broker. I prefer M1 Finance.
• JEPI and JEPQ are untested in severe bear markets. It is unclear how they will perform when stocks fall dramatically. 

Please note that both ETFs update their prospectuses regularly. The information referenced in this article will change over time.

The best resource for both funds is the respective company’s websites.

Here are links to the most updated information at J.P. Morgan. Consider the information on those pages to be the authoritative data source.

• J.P. Morgan’s Equity Premium Income ETF (JEPI)
• J.P. Morgan’s Nasdaq Equity Premium Income ETF (JEPQ)

JEPI vs JEPQ Comparison

Side-by-Side

Here’s a side-by-side comparison of both ETFs. Scroll right on mobile.

A few noticeable differences between JEPI vs JEPQ:

• JEPI is a larger fund by 5X and older by two years.
• Both expense ratios are low for actively managed ETFs — identical at the time of writing.
• JEPQ has a much higher percentage in the top 10 holdings, indicating it is less diversified.
• JEPQ has outperformed JEPI since over the latest one-year period. JEPQ is newer — launched in May 2022. Time will tell if JEPQ continues to outperform. 
• JEPI has more holdings, but its holdings are a smaller fraction of its benchmark index holdings (500), whereas JEPQ holds a higher percentage of its benchmark holdings (100). 

Benchmark Indexes

JEPI tracks the Standard & Poor’s 500 Total Return Index (S&P 500 Index), one of the most followed indexes in the world. 

Visit this page for the latest information about the weighted index.

There are 500 stocks in the index, representing both the Nasdaq and New York Stock Exchange (NYSE). The companies are the largest and most established in the U.S.

JEPQ tracks the Nasdaq-100 Index, a tech and growth-focused weighted index.

Visit this page for the latest information about the index.

The Nasdaq-100 Index is comprised of the “largest and most innovative non-financial companies listed on the Nasdaq Stock Market based on market capitalization”.

The main differences between the funds are: 

• The S&P 500 Index is larger and contains both NYSE and Nasdaq stocks.
• The S&P 500 Index includes stocks from all industries, including financials, industrials, energy, and utilities, excluded from or underrepresented in the Nasdaq-100.
• The Nasdaq-100 Index is tech-heavy and has outperformed the S&P 500 Index over the past 10 years. It only holds the top 100 Nasdaq-listed stocks as measured by market capitalization. 

Performance Chart (Excluding Dividends)

The performance of these two funds has been tracked similarly for the past few years.

Here is a daily updated JEPI vs JEPQ chart compared against each other since JEPQ’s inception date (05/04/2022). Scroll right on mobile.

Note: This chart does not account for dividend payments. When a dividend is paid to shareholders, the security price is reduced by the amount of the dividend. Click here to build a chart to show total returns.

Past performance is not indicative of future results. 

Either fund is suitable as an income-producing asset in your portfolio. 

See the table above for one and three-year average annual performance records. As both funds age, we’ll update the table and chart to reflect more data. 

Dividend Payout Schedules

Both JEPI and JEPQ pay monthly dividends. 

Investors receive monthly dividend payments on the 1st, 2nd, or 3rd of the month, depending on where the weekend falls. The only exception is in December, when investors receive two dividend payments (approximately the 1st and 29th).

Presumably, the second December payment being completed in the current year helps to simplify and provide more time for tax reporting for J.P. Morgan. 

Top Ten Holdings

Here are the top ten holdings for each fund. Visit the links at the beginning of the article for the most updated lists. 

 
Read more: JEPI Top 50 Holdings, JEPQ Top 50 Holdings

What are Equity-Linked Notes?

Since the funds do not own the indexes directly (e.g., SPY or QQQ), managers use equity-linked notes (ELNs) to generate similar returns to a covered call strategy against the indexes. The income derived from the covered call strategy is paid to investors as a monthly dividend.

The funds are each comprised of approximately 80% stocks and 20% ELNs. 

The combined strategy of holding undervalued stocks and selling call options enables high monthly dividend income while maintaining the prospects for capital appreciation. 

JEPI and JEPQ have fewer stock holdings than their respective benchmark indexes. Managers deploy proprietary research to select attractively valued stocks. 

How do Covered Calls work in JEPI and JEPQ?

Writing (or selling) a covered call is a basic and low-risk option strategy whereby investors/fund managers sell a call option against a portfolio holding.

A call option is a right to buy the underlying security at a set price (the strike) on the expiration date. JEPI and JEPQ managers write short-dated calls (set to expire within a month or so) to generate income and lower overall volatility. 

When the fund managers write the calls (sell to another buyer), they collect a premium (payment) used to pay ETF investors as dividends. 

If the underlying asset rises above the strike price by the expiration date, the call buyer will exercise the option to buy the asset at a lower price than the current price.  

If the underlying asset falls in value, the call option expires worthless, nothing happens to the asset, and the seller keeps the premium. 

JEPI and JEPQ use the covered call option strategy to achieve similar index returns while reducing volatility and paying out a high-yield dividend. 

Covered calls work best in a flat market. The strategy reduces downside risk and potential gains in up or down markets. 

Alternative Funds

Here are the mutual fund alternatives for both ETFs.

• JEPI = JEPIX 
• JEPQ = Does not have a mutual fund equivalent.

Presumably, if J.P. Morgan Asset Management launches a JEPQ mutual fund equivalent, the symbol will be “JEPQX”.

Mutual funds trade differently than ETFs, which trade like stocks. 

ETFs are easier to own, and the price changes throughout the day. Mutual funds only trade at the market close. 

Active investors typically use ETFs for trading purposes or to buy and hold indexes when they can’t access index mutual funds.

For example, if you have an investing account with M1 Finance, you’d invest via ETFs instead of mutual funds. Investors with accounts at the large brokers (e.g., Fidelity, Vanguard) often choose the mutual fund version of a fund if available.

Note that many brokers charge a few to own another provider’s in-house mutual fund. ETFs can be traded commission-free at most online brokers. 

• Learn more about JEPIX here

Similar covered call ETFs include:

• XYLD — The Global X S&P 500 Covered Call ETF
• QYLD — The Global X Nasdaq 100 Covered Call ETF

Best Broker to Buy JEPI or JEPQ

Here are my favorite online brokers for investing in ETFs and automatically reinvesting dividends. 

Charles Schwab, Fidelity, and Vanguard are excellent choices for long-term retirement investors. You’re in good hands if your IRA or employer-sponsored plan is with either broker.

I recommend another broker for a more modern user experience that can also serve your banking, borrowing, and spending needs. 

Long-term investors may prefer an online broker better for dollar cost averaging and dividend reinvestment. 

I’m a big fan of the online brokerage M1 Finance. M1 Finance is a reliable, robust, no-fee online broker for beginner and intermediate investors. It’s easy to get started.

As your investing skills and portfolio mature, M1 is one of the best platforms to scale.

Investing in stocks and ETFs is 100% free on the platform. They also offer an integrated checking account and low borrowing rates. Read my complete M1 Finance review here. 

M1 Finance does not offer mutual funds. However, ETFs are plentiful. It’s my favorite online broker for everyday investing. 

The platform is more intuitive than old-school brokers because it’s built on a modern technology platform.

You create portfolio “pies” that contain all the stocks and ETFs you want to own and in what percentages. Simply add an ETF to a pie and add funds to your account. 

Learn More about M1 Finance

Conclusion

Deciding between JEPI vs JEPQ comes down to the investor’s risk tolerance for holdings concentration — including the total number of holdings and percentage allocation of the top 10 holdings. 

JEPQ has outperformed JEPI in the early stages, but these are relatively new funds untested in a bear market, which could introduce unexpected risk with market volatility. Conservative investors may not be comfortable with the lack of historical performance data.

JEPQ has a greater concentration of risk exposure in the top 10 holdings, more than 40%. Holdings like Apple and Microsoft performed well and lifted the Nasdaq-100, thus increasing returns. 

JEPI is currently five times as large as JEPQ due to its age. If both funds continue to perform and have attractive yields, we expect the assets under management will continue to grow for both funds. 

Investors with a higher risk tolerance whose objectives require higher dividend yields and returns can choose JEPQ but are more vulnerable to concentration risk. 

Investors with a lower risk tolerance who prefer a more diversified ETF and still want to receive a high yield compared to the S&P 500 index or total market ETFs should choose JEPI. 

Own either fund in a tax-advantaged account like a traditional or Roth IRA to avoid dividend taxation. 

Purchase either ETF at any commission-free online broker. 

Please reply with your questions regarding JEPI vs JEPQ in the comments section below. Include any requests you have about adding more detail to this article. 

Additional Resources

• JEPI Dividend History and Yield
• JEPQ Dividend History and Yield
• JEPI vs. SCHD
• SCHD vs. VIG
• VYM vs. VIG

Disclosure: The author is long VTI and SCHD but does not own JEPI or JEPQ. 

Craig Stephens

Craig is a former IT professional who left his 19-year career to be a full-time finance writer. A DIY investor since 1995, he started Retire Before Dad in 2013 as a creative outlet to share his investment portfolios. Craig studied Finance at Michigan State University and lives in Northern Virginia with his wife and three children. Read more.