Are you looking to invest in an ETF that generates income while also appreciating? If so, then JEPI and JEPQ are great options. These are two dividend-focused ETFs offered by JP Morgan.
JEPI uses a bottom-up approach and its proprietary stock-rating system to generate a portfolio. JEPQ, on the other hand, uses the Nasdaq 100 to maximize risk-adjusted returns through its proprietary data science-driven approach.
This post will compare JEPI and JEPQ’s diversification, performance, fees, and tax efficiency to help you decide which is right for you.
What is JEPI?
JEPI is a new ETF that generates monthly income offered by JP Morgan in starting in 2020.
This ETF It uses a bottom-up fundamental research process and proprietary risk-adjusted stock rankings to give investors adequate market exposure and less volatility. The process generates a well-diversified portfolio with market exposure split between all sectors. In addition, the top 10 holdings only account for approximately 15% of the portfolio.
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What is JEPQ?
JEPQ is the JPMorgan Nasdaq Equity Premium Income ETF. Similar to JEPQ, it aims to deliver current income while maintaining prospects for capital appreciation. They do this by using the Nasdaq 100 as a baseline for their performance and their proprietary data science-driven investment approach.
The fund started in 2022 and has a high concentration in the information technology sector, following a similar composition as the Nasdaq 100.
JEPI vs JEPQ
|Fund Type||ETF||ETF||Split Decision|
|Diversification||Bottom-up fundamental research process||Nasdaq 100 Index||JEPI|
|Number of Holdings||133||88||JEPI|
|Tax Efficiency||ETFs generally are more tax efficient||ETFs generally are more tax efficient||Tie|
|Tax Loss Harvesting||Funds must settle and may need 1-2 days to be available for reinvestment||Funds must settle and may need 1-2 days to be available for reinvestment||Tie|
|Trading & Liquidity||Daily trading during Market Hours||Daily trading during Market Hours||Tie|
Diversification – JEPI
JEPI and JEPQ aim to generate income by investing in companies that issue stock regularly. These funds take two different approaches to reaching their goals, and their portfolios reflect that.
Below, you can see the difference between JEPI and JEPQ portfolios by industry.
From the table above, we can see that JEPI has a more diversified portfolio, with no industry taking up more than 15% of the portfolio. JEPQ, on the other hand, is more concentrated in the information technology sector, with 41.40% of the portfolio.
Now, let’s examine the top 10 holdings for each fund in the table below.
|Meta Platforms Inc||3.46%|
|Advanced Micro Devices||1.63%|
|Trane Technologies PLC||1.59%|
As the table shows, JEPI has a clear advantage when it comes to diversification.
JPEQ top ten holdings is less diversified as well, accounting for 43% of the portfolio. In contrast, JEPI’s top ten holdings only account for 16% of the portfolio, with no single stock accounting for more than 2% of the portfolio.
Overall, JEPI is more diversified between industries and individual stocks.
Minimum Investment – Tie
JEPI and JEPQ both have investment minimums of $1. Both funds are highly accessible to investors and available by many brokerage firms, making them easy to invest in.
Both funds are ideal for any investment level.
Expense Ratio – Tie
Expense ratios are important because they determine how much you will pay from your returns to the fund for operating your portfolio.
JEPI and JEPQ have expense ratios that align with the industry average or even a bit higher. They each have an expense ratio of 0.35%, making them relatively expensive compared to other ETFs.
Trading and Liquidity – Tie
JEPI and JEPQ have the same trading and liquidity characteristics since they are both ETFs.
As ETFs you can buy and sell ETFs throughout the day at any time during market hours. This is not the case with mutual funds, which are only traded at the end of the day based on Net Asset Value (NAV). This benefit of ETFs doesn’t come without drawbacks, though – given that ETFs can trade throughout the day, they typically sell at prices slightly different from their NAV. This difference is called a bid-ask spread.
ETFs offer an advantage to investors who trade daily or change positions frequently. Since they can trade throughout the day, whereas mutual funds, you have to wait until the day is closed.
Another essential consideration between JEPI and JEPQ if you are a trader, is the median spread price. For JEPI, the median spread disclosed by JP Morgan is 2.00%, while the spread for JEPQ is undisclosed.
Tax Efficiency – Tie
When comparing two different investment options, it’s essential to consider the tax implications and not only the returns they generate. The tax implications of an investment can have a considerable impact on which investment generates higher after-tax returns.
Generally, ETFs will have a slight edge from a tax efficiency perspective. ETFs tend to distribute comparatively fewer capital gains to shareholders – these same gains are simply more challenging to manage efficiently from a mutual fund. However, this is not a concern with Vanguard ETF and mutual funds due to their patented process. This makes Vanguard ETFs and mutual funds tax equivalent to each other.
It’s important to consider that JEPI generates a higher dividend yield and, correspondingly a higher tax burden. As a result, while JEPQ is likely to create higher yearly payments, this will also be accompanied by a higher tax burden.
Tax Loss Harvesting – Tie
As ETFs, both JEPI and JEPQ funds have the same rules and regulations.
Tax-loss harvesting is a strategy that involves selling investments at a loss to offset gains (and up to $3,000 in ordinary income). Tax-loss harvesting only matters in taxable investment accounts since you aren’t taxed on capital gains in tax-deferred accounts. While this strategy can be implemented using any type of investment (stocks, ETFs, mutual funds, or other property), mutual funds have an advantage because of how they are traded.
When you sell an ETF, you’ll have to wait for the funds to settle before reinvesting the proceeds. You may have to wait one or two days before you have access to the funds, commonly called T+2.
Performance & Dividends
One of the most critical aspects of an investment is its performance. In this case, when choosing a fund intended to generate income today, one of the most essential features to consider is the dividend yield.
Let’s examine the performance of each fund based on the total annual return using the table below.
|Quarterly Returns at NAV|
|Commulative Returns at NAV|
From the table above, we can see that in the single year of operation, JEPQ has outperformed JEPI.
With that said, it’s important to take this performance with a grain of salt since as these two funds are relatively new. JEPQ started in 2022, so less than one full year of performance is available.
It’s best to track a fund’s performance over several years to determine how consistent it is and how it responds to market fluctuations.
Below, we can see the dividend performance of JEPI and JEPQ.
Overall, in 2023, we can see that both funds had a similar performance with JEPQ outperforming JEPI by 0.42%.
JEPI has shown consistent improvement in performance since its inception. Starting with a 2.29% dividend yield and increasing to 10.86%.
JEPI vs JEPQ: Where Should Invest?
JEPI and JEPQ are two ETFs to generate current income while maintaining the prospect of capital appreciation. They achieve this by investing in a stock that distributes dividends.
These two ETFs are very similar in their tax efficiencies, tax loss harvesting, expense ratios, and minimum investments.
One of the main differences between these two ETFs is their diversification approach. JEPI uses a bottom-up fundamental research approach combined with its proprietary risk-adjusted stock rankings.
On the other hand, JEPQ uses the Nasdaq 100 as an index, using a data science approach to maximizing risk-adjusted expected returns.
JEPI has a more diversified portfolio, not concentrating on one industry. On the other hand, JEPQ is heavily concentrated in the information technology sector, with approximately 41%. Likewise, the top 10 holdings for JEPQ account for 43% of the portfolio, while JEPIs’ top 10 holdings only account for 15%.
Another critical difference between these two funds is when they were started. JEPI started in 2020, and JEPQ in 2022. This means that JEPQ only has one full year of performance history and has a partial calendar year of performance under its belt. This makes comparing their performance a bit premature.
The key performance metric for the dividend ETF is the dividend yield. JEPI generated a dividend yield of 10.86 in 2023 as of September 30, 2023. Likewise, JEPQ generated a dividend yield of 11.28%. At the same time, JEPQ has a slight advantage, it’s hard to consider it out-performing since the year is not over, and it has a limited performance history to compare.
Overall, JEPI’s performance since inception has shown consistent improvement. In addition, the dividend yield over the last two years has been approximately 9% and 11%, respectively.
While it is hard to give an advantage to either ETF here, I prefer historical performance over a single year of performance. I would give the edge to JEPI until we can compare the performance of JEPQ over several years.