ETFs
High Yield ETF Showdown: JEPI vs. HIPS
Even as the stock market hovers around an all-time high, there are good reasons to approach the current situation with caution. Excitement over AI, risks of slowing global growth, and still-present inflationary pressures point to potential bubbles and occasional corrections.
In this context, high-yield ETFs could come to the rescue of investors. This is especially true given that even if the stock or fund falls, higher current income will go a long way to protecting investors’ total returns.
After all, high-yielding ETFs offer investors ways to offset capital losses, should they occur. Investors should note that JPMorgan Equity Premium Income ETF JEPI is currently a popular ETF investment, as it has attracted approximately $1.975 billion in assets so far this year. The fund currently yields 7.26%.
There are also other investment options that offer a high level of current income. GraniteShares HIPS US High Income ETF HIPS is one of them. The HIPS fund returns 10.02% annually and has amassed approximately $11.88 million in assets in the year to date.
Let’s dig a little deeper and find out how these two ETFs are different from each other and what are the positives and negatives associated with them.
How JEPI works
This is a defensive stock portfolio that deploys a bottom-up fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings. The disciplined options overlay implements out-of-the-money (OTM) written call options on the S&P 500 Index that seek to generate monthly distributable income.
Trading OTM call options is beneficial when the expectation of an upward movement in the price of the underlying asset is high. In a rising market, these options have the potential to become profitable as the price of the underlying asset approaches and exceeds the strike price. And this incident happened for the S&P 500 this year.
Because OTM call options require a lower initial investment than at-the-money or in-the-money options, they are a useful tool for traders with limited capital who are optimistic about potential upside. of the market.
How HIPS works
HIPS provides diversified exposure to four alternative income categories: MLP, REIT, BDC and closed-end funds. The fund is particularly rich in MLPs (26.98%), followed by BDCs (24.72%), closed-end funds (24.62%), and REITs (23.20%). HIPS has maintained a monthly distribution of 10.75 cents per share since its inception in 2015. This is a significant advantage for the fund.
The story continues
Which fund is the most expensive?
JEPI charges 35 basis points in fees, while HIPS’ expense ratio is 1.99%. Therefore, it can be seen that HIPS is much more expensive than JEPI, and this high expense ratio eats up the former’s 10% return to some extent.
Duo interior performance
The HIPS fund returned a total of 59.07% over the period May 29, 2020 to April 30, 2024, compared to 54.01% for JEPI. In particular, during this period, iShares iBoxx $High Yield Corporate Bond ETF HYG added 12.9% while iShares Core US Aggregate Bond ETF AGG and iShares 20+ Year Treasury Bond ETF TLTs lost 11.1% and 40.9% respectively.
What awaits us?
As the latest CPI inflation numbers weaken, bets on the Fed cutting rates sooner than expected have grown. If that happens, the rate-sensitive investment areas that HIPS focuses on should see a rally, leading to a rally in the fund itself.
Meanwhile, JEPI is also expected to remain strong as the uptrend around the S&P 500 index is expected to continue. In addition, the fund offers a defensive position so that it can protect the portfolio against any downside risk.
That said, we would like to note that JEPI (32.46X) is significantly more expensive than HIPS (17.97X). Therefore, in the event of a Fed rate cut or lower interest rates, the chances of a faster recovery are likely present in HIPS. And if inflation remains stable and the Fed stays put longer, JEPI will likely outperform HIPS by a moderate margin. HIPS is up 3.4% this year, JEPI is up 4.1%, while the S&P 500 has jumped 11.8%.
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iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
iShares iBoxx $ High Yield Corporate Bond ETF (HYG): ETF Research Reports
iShares Core US Aggregate Bond ETF (AGG): ETF Research Reports
GraniteShares HIPS US High Income ETF (HIPS): ETF Research Reports
JPMorgan Equity Premium Income ETF (JEPI): ETF Research Reports