ETFs
1 unique S&P 500 ETF for those looking for passive income and less volatility
This ETF offers income and upside potential.
THE S&P500 The index is one of the most popular investment benchmarks. Over the past three decades, the broad market index has produced an average annualized total return of nearly 10%. For this reason, many investors choose to match the returns of the index by investing in an exchange-traded fund (ETF) designed to track it.
Although traditional S&P 500 ETF offer investors returns roughly matching this broader market index, they have some drawbacks. They don’t generate much revenue (the S&P 500 dividend yield is around 1.3%) and exposes investors to stock market volatility. Investors looking for more income with less volatility have many options, including JPMorgan Equity Premium Income ETF (JEPI 1.00%). Here’s a closer look at this unique S&P 500 ETF.
A dual strategy to fulfill its mandate
The JPMorgan Equity Premium Income ETF aims to provide investors with monthly income and exposure to the equity market with less volatility than the market as a whole. THE actively managed The ETF has a two-pronged strategy to achieve its objective.
Instead of holding every stock in the S&P 500, this ETF writes out-of-the-money purchase options on the S&P 500 Index. This strategy generates options premium income, which the fund distributes to investors each month. Options premiums tend to be higher during periods of market volatility. This allows the fund to benefit from volatility by generating more income for investors.
The second part of its strategy involves holding a defensive portfolio of stocks selected based on its proprietary risk-adjusted stock rankings. The ETF currently holds around 100 stocks. It focuses more on quality than quantity. It also has a more equally weighted allocation to its top holdings. For example, its top 10 holdings (which include tech titans Microsoft, Amazon, MetaAnd Alphabet) represent less than 16% of its net assets. That’s about half the weighting of the top 10 stocks in the S&P 500. A lower concentration among its top holdings helps reduce volatility.
Exposure to income and equity markets with less volatility
The big appeal of the JPMorgan Equity Premium Income ETF is its monthly cash distribution. This payment increases and decreases each month, mainly due to market volatility:
JEPI dividend data by Y Charts
During periods of high volatility, the ETF will generate more options premium income to distribute to investors.
Over the past year, the ETF has generated a dividend yield of around 8%. This is significantly higher than other asset classes. It is closer to the return investors could earn on high-yield securities. junk bonds (7.7%) these days. Although the payout will continue to fluctuate, it should generate a significantly above-average revenue stream over the long term.
Additionally, the ETF allows investors to potentially achieve higher total returns than fixed income investments with less volatility than the S&P 500.
Although the ETF has not outperformed the S&P 500 since its inception three years ago, it has generated a solid total return. It achieved this by producing steadier returns (through income and price appreciation) with less pronounced ups and downs.
The fund’s more defensive posture will cost it returns during strong market rallies. For example, he is currently underweight the semiconductor giant Nvidia (allocation of 0.4% compared to 5% in the S&P 500), which weighs on its results. Nvidia shares have soared this year, boosted by growing demand for its chips intended to power AI applications. However, while Nvidia’s underweight has been a headwind this year, it could prove a positive going forward if the semiconductor stock experiences a sharp selloff.
Earn Income and Benefits
The JPMorgan Equity Premium Income ETF allows investors to capitalize on the volatility of the S&P 500. During periods of market volatility, this ETF will generate more options premium income to distribute to investors. Even though investors give up some of the upside potential of their stocks, the fund can still generate higher total returns than many income-oriented investments. This can make it a great addition to a portfolio, helping investors earn more income while smoothing their returns.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Matt DiLallo holds positions in Alphabet, Amazon, JPMorgan Equity Premium Income ETF and Meta Platforms. The Motley Fool holds positions and recommends Alphabet, Amazon, 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 Mad Motley has a disclosure policy.