What are you looking for in your investment portfolio? Some investors are looking for growth and capital appreciation for their holdings. Others are looking for stability and a steady income stream through dividends and distributions. Dividend ETFs have become a popular source for both of these investment strategies wrapped up into one asset. In this article, we take a look at JPMorgan’s NASDAQ Equity Premium Income ETF (NASDAQ: JEPQ) and answer the question that many of you have: Is JEPQ a good investment? We looked into JEPQ and here’s what we found.
JEPQ offers investors a nice balance of dividend income and the potential for capital appreciation. This ETF will trade as the NASDAQ does, so keep that in mind. Why is JEPQ a good investment? Because it provides exposure to the biggest tech names on the NASDAQ index and also pays out a monthly distribution yield. As we know, growth stocks and dividends are two things that historically have not gone together.
Let’s remember that investing is a very personal decision. Everyone has their own investment goals, timelines, and personal financial situations. Is JEPQ a good investment for you? That’s up to you to decide! Let’s take a closer look at JEPQ so you can have a full idea of what this ETF is truly about!
Is JEPQ a Good Investment? What is JEPQ?
For those of you who are new to JEPQ, here are the basics. What is JEPQ ETF? It is the NASDAQ Equity Premium Income ETF from JPMorgan Asset Management. In terms of its history, JEPQ is a very new ETF to the market. It first debuted on the NASDAQ exchange in May 2022. As we celebrate JEPQ’s first birthday as a publicly-traded ETF, we’ll compare how it has held up against some of the more established dividend ETFs.
JEPQ is often linked to its very popular sibling ETF JEPI which is the JPMorgan Equity Premium Income ETF (NYSEARCA: JEPI). Like JEPI, JEPQ is a covered call ETF, which means in addition to holding underlying stocks, the fund managers also actively sell covered call options contracts against their positions. This allows the fund to pay out the premiums earned from selling those covered calls as a high distribution yield to shareholders. Like many covered call ETFs, JEPQ pays these distributions out on a monthly basis.
Read here for our article on Covered Call ETFs: High Dividends for Low Growth
Here are some key facts for JEPQ as of November 2023:
|Ticker Symbol||NASDAQ: JEPQ|
|Inception Date||May 3rd, 2022|
|ETF Provider||JPMorgan Asset Management|
|Assets Under Management||$6.47 billion USD|
|Management Expense Ratio (MER)||0.35%|
|30-Day SEC Dividend Yield||11.68%|
|Number of Holdings||88|
|1-Year Fund Performance NAV||+27.44%|
The first year wasn’t great for JEPQ as it has returned a modest gain of 2.88%. Over that same period of time, the NASDAQ-100 index returned 2.12%. So far in 2023, JEPQ has returned a gain of 23.7% compared to the return of the NASDAQ index of 29.76%. This does not take into account any reinvestment of dividends.
JEPQ MER: Covered Call ETFs Have Higher Fees
One of the most important traits of an ETF to consider is how high its fees are. Why? Because over the long run, these management fees can have a direct impact on your returns. The more you have invested in an ETF the higher the fees you will have to pay every year. These fees are referred to as the Management Expense Ratio or MER. How exactly is an MER calculated? Let’s crunch some numbers to calculate exactly how much you have to pay to own JEPQ in your portfolio.
The current MER of JEPQ is 0.35%:
What does the MER of 0.35% mean? It means for every $10,000 you have invested in JEPQ, you will pay about $35.00 in fees.
For every $1,000 of JEPQ, you will pay $3.50 and for every $100 of JEPQ, you will pay just $0.35 in fees! As you can see, even with an MER of 0.35%, the fees for JEPQ are not terrible.
JEPQ’s MER is higher than other popular dividend ETFs on the market like VIG and SCHD. It has an identical MER to JEPI. The obvious trade-off for the high MERs of these funds is the high yield and monthly distributions.
Related Savvy Canadian Finance Article: What are 0DTE Options?
JEPQ Holdings: The Top Stocks in the NASDAQ 100 Index
JEPQ holds most of the top stocks that compose the NASDAQ-100 index. Obviously, this includes all of the mega-cap tech stocks as well as other popular holdings like Tesla (NASDAQ: TSLA), PepsiCo (NASDAQ: PEP), and PayPal (NASDAQ: PYPL). Here are the top ten stock holdings in JEPQ as of November 2023:
|Stock Company Name||Stock Ticker Symbol||Weighted Allocation in JEPQ|
|Alphabet Inc Class C Shares||GOOG||5.03%|
|Meta Platforms Inc||META||3.37%|
Here is the Sector Exposure for JEPQ’s holdings:
|Sector Name||Weighted Allocation in JEPQ|
How do you feel about JEPQ’s top holdings? It should come as no surprise that companies like Microsoft and Apple account for such a large portion of the fund. If you are bullish on these tech companies or just want to hold them all in your portfolio, JEPQ is not a bad way to do so. This is one of the best ways to invest in tech stocks while earning a massive dividend yield.
In terms of JEPQ’s sector allocation, it should also come as no surprise that Information Technology accounts for more than 40% of the holdings. It is nice to see some diversity in the sector holdings. When it comes to JEPQ, it is a much more concentrated portfolio of tech stocks.
JEPQ Dividends: High-Income Flow on a Monthly Basis
Chances are the reason you are reading this article is that you are intrigued by JEPQ’s dividends. Both JEPI and JEPQ have been popular investments for dividend investors. Monthly distributions can be a great way to build your JEPQ position or allocate that cash flow to other assets.
The current 30-day SEC yield for JEPQ sits at a whopping 11.68% and is paid out on a monthly basis. This massive yield is why most investors are okay with JEPQ’s higher MER. You can more than make back those fees with the monthly distributions. It should be noted that the dividend yield has fallen from 13.95% as of May 2023, which shows this high yield can be volatile.
Check out our guide to the Wheel Strategy: Selling Options for Consistent Income
What does JEPQ’s massive monthly dividend payout equate to for shareholders? Just as an example, the most recent dividend payout in November 2023 was about $0.42 per share which is about the same as it was in October.
If you hold 100 shares of JEPQ, about $4,752 at the time of this writing, you would have received $42.00 in November.
If you hold 1,000 shares of JEPQ, about $47,520 at the time of this writing, you would have received $420.00 in October.
So far in JEPQ’s first year, the monthly dividend amount has been as low as $0.33 per share and as high as $0.68 per share. For the first 12 JEPQ dividend payments, the average distribution was about $0.47 per share.
How is JEPQ Taxed? Is JEPQ a Good Investment For Canadian Investors
Since American investors can hold JEPQ in tax-friendly accounts without penalty, it is easy to own JEPQ and not have to worry about the tax implications.
Like most American dividend ETFs, JEPQ is not as tax-friendly for Canadian investors. First, if you want to buy JEPQ from a Canadian brokerage you will need to pay foreign exchange rates. Whether you buy it in US or Canadian dollars, your purchase will be subject to the brokerage’s rates. Even if you hold JEPQ in a tax-friendly account like a TFSA, you still have to pay the mandatory 15% withholding tax for US dividends.
JEPQ does not provide as much capital appreciation as other assets since it is focused on being an income-generating ETF. Still, make note that if you do need to sell your stake in JEPQ in the future, you will also need to pay taxes on the capital gains you make.
As a Canadian investor, the taxes can be heavy for owning high-dividend paying, US-listed ETFs. Of course, it’s also difficult to find an ETF that can match the dividend prowess of JEPQ that trades on the TSX. Even though you will be taxed on those dividends, you might be happy with the income that JEPQ provides. Consider your own personal investment strategy and goals before investing in JEPQ.
JEPQ vs JEPI
What is JEPI ETF? It is one of the more popular income ETFs on the market right now. JEPI is a high-yield, covered-call ETF that holds a portfolio of safe, blue-chip stocks. Just as with JEPQ, the fund managers write covered calls against the holdings and distribute those premiums to shareholders in the form of a monthly dividend.
The current 30-day SEC dividend yield for JEPI sits at 7.90% and paid out about $0.36 per share in October and November. As mentioned, JEPQ and JEPI have the same MER of 0.35%. As of November 6th, 2023, JEPI trades at a price of $53.58, making it about $6.00 more expensive than shares of JEPQ.
The primary difference between the two is the type of holdings that each fund has. While JEPQ invests primarily in the NASDAQ-100 stocks, JEPI holds a nice balance of blue-chip, high dividend-paying stocks. JEPI holds a total of 135 different holdings, with the largest stock allocations belonging to Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Adobe Inc (NASDAQ: ADBE), and the Progressive Corp (NYSE: PGR).
So is JEPI a good investment? Like JEPQ, JEPI serves a very specific purpose in your portfolio: income. While the dividend yield is high, you cannot expect much in the way of capital appreciation. If your goal is long-term growth, you might actually want to consider holding JEPQ instead of JEPI.
Check Out Our Full JEPI Review Here
JEPQ vs SCHD
What is SCHD ETF? It is the US Dividend Equity ETF (NYSEARCA: SCHD) from Charles Schwab. This is one of the more popular dividend ETFs on the market and has over $46.5 billion USD in net assets. It was established in 2011 and has provided an average annual return of 12.53% to shareholders.
SCHD is more of your traditional dividend ETF. It is an all-equity fund that only holds stocks that provide both capital appreciation and dividend growth. SCHD holds a total of 104 different stocks, with the largest allocations to Broadcom (NASDAQ: AVGO), Verizon Communications Inc (NYSE: VZ), AbbVie (NYSE: ABBV), Amgen Inc (NASDAQ: AMGN), and the Coca-Cola Company (NYSE: KO).
One of the more attractive things about SCHD is its low MER of just 0.06%. Compared to ETFs like JEPQ, you are paying one-sixth of the management fees. This means you do end up keeping more of your gains over the long run.
The difference with SCHD is that it pays out a more reasonable dividend yield of 3.87% that pays out on a quarterly basis. SCHD is a better position to hold for younger investors or those who are seeking dividends and long-term capital appreciation.
JEPQ vs VIG
VIG or the Vanguard Dividend Appreciation ETF never gets as much attention as other dividend ETFs like SCHD. Perhaps this is due to the higher share price, as it is more than double the price of owning SCHD. This Vanguard dividend ETF holds 314 different stocks with a focus on large-cap companies that grow their dividends each year.
Performance-wise, VIG has underperformed JEPQ over the past year with a 5.15% return to shareholders. The dividend yield is fairly low compared to other ETFs in this article. VIG pays out a quarterly dividend with a 30-day SEC yield of 1.97%.
As for its portfolio, VIG holds many of the best dividend stocks to own. The largest holdings in VIG are Microsoft Corp, Apple Inc, Exxon Mobil, and UnitedHealth Group.
VIG is never as popular as ETFs like SCHD, but in our opinion, it certainly has a stronger overall portfolio of stocks. There is room to own all of these dividend ETFs in an income-focused portfolio.
JEPQ vs QYLD
QYLD or the Global X NASDAQ 100 Covered Call ETF (NASDAQ: QYLD) is another popular dividend-focused ETF. This fund is built similarly to JEPQ in that it holds most of the NASDAQ-100 stocks on which covered call options contracts are sold.
This Global-X covered call dividend ETF has 102 different holdings and an MER of 0.60%. This means you are paying nearly double the fees of JEPQ and JEPI. The top holdings in QYLD are Microsoft Corp, Apple Inc, Amazon.com Inc, and NVIDIA.
QYLD has a monthly distribution to shareholders with an annualized yield of 11.97%. This means that QYLD has a slightly higher yield but a much higher MER than JEPQ. In our opinion, this makes JEPQ the superior investment for income-seeking investors.
The Bottom Line: is JEPQ a Good Investment?
Here’s where your own personal investment strategy comes into play. Is JEPQ a good investment? This ETF is an incredible source of monthly income. Investors who are seeking an asset that can provide a high monthly yield and minimal volatility will enjoy holding JEPQ in their portfolios. If you are seeking high growth and outsized returns with a tax-friendly structure, then JEPQ might not be the right investment for you.
Is JEPQ a good investment for Canadians? As with owning any US assets, you can be expected to pay a little extra for JEPQ. Not only do you have to pay foreign exchange in US dollars to own the ETF, but you will need to pay taxes on the dividends as well. In a TFSA, JEPQ’s dividends will be subject to the 15% withholding tax for US dividends.
When it comes to fees, JEPQ has a higher MER than other dividend ETFs like SCHD or VIG. This is due to the actively managed portfolio and the system of selling covered calls to generate premiums. You can take the high dividends but just know that the higher MER comes with it.
As always, make sure to do your own due diligence to see if investing in JEPQ makes sense for you. This article is not meant to be financial advice, but rather an introduction to what investing in JEPQ can mean for you.