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SCHD vs. JEPI: Which should you invest in?

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JEPI and SCH are two of the market’s highest-performing and well-known dividend ETFs.

Both of these ETFs aim to generate quality and sustainable dividends. JEPI is an actively managed fund that uses proprietary software, while SCHD is a passively managed ETF that tracks the performance of the Dow Jones U.S. Dividend 100 Index.

 

But how do you decide which one is best for you?

 

In this post, we’ll compare JEPI and SCHDs diversification, expense ratio, and performance to help you decide which is right for you.

 

What is JEPI?

 

The JPMorgan Equity Premium Income ETF, or JEPI, is a new ETF introduced by JP Morgan designed to generate monthly income. JEPI aims to generate premium monthly distributable income with lower volatility.

 

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This ETF 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.

 

What is SCHD?

 

The Schwab U.S. Dividend Equity ETF, or SCHD, is a dividend ETF offered by Charles Swab Asset Management. Its objective is to track the performance of the Dow Jones U.S. Dividend 100 Index.

 

The Dow Jones U.S Dividend 100 Index measures the performance of high-dividend-yielding stocks in the U.S. that have shown a consistent record of paying high dividends. The SCHD ETF aims to generate quality and sustainability of dividends.

 

VOO vs. SCHD Summary

 

JEPI SCHD Edge
Fund Type ETF ETF Tie
Diversification Bottom-up fundamental research process Dow Jones U.S Dividend 100 Index Tie
Inception Date 2020 2011 SCHD
Number of Holdings 133 104 Tie
Risk Rating Moderate Moderate Tie
Minimum Investment $1.00 $1.00 Tie
Expense Ratio 0.35% 0.06% SCHD
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 and Liquidity Daily trading during Market Hours Daily trading during Market Hours Tie
Performance 9.81% in 2023 4.57% in 2023 JEPI
Dividend Yield 8.30% in 2023 3.49% in 2023 JEPI

 

Diversification – JEPI

 

JEPI and SCHD are both ETFs that aim to generate monthly income. JEPI is an actively managed fund that does not follow an index, while SCHD tracks the performance of the Dow Jones U.S Dividend 100 Index.

 

Below is the portfolio breakdown by sector for JEPI and SCHD as of February 2024. Remember that these portfolios are not fixed since SCHD is reconstituted quarterly, while JEPI is an actively managed fund that can change portfolio holdings to maximize return.

 

Industry JEPI SCHD
Industrials 13.77% 17.14%
Financials 12.63% 16.73%
Health Care 13.72% 15.90%
Information Technology 18.79% 12.58%
Consumer Staples 12.53% 11.95%
Consumer Discretionary 8.83% 9.41%
Energy 2.91% 9.25%
Communication Services 4.86% 4.35%
Materials 3.50% 2.31%
Utilities 4.80% 0.39%
Real Estate 3.67% 0.00%

 

The table above shows that JEPI and SCHD have very different portfolio compositions. JEPI’s three primary sectors are information technology, industrials, and healthcare, whereas SCHD’s primary sectors are industrials, financials, and healthcare.

 

JEPI’s top three sectors account for 46% of the portfolio, whereas SCHD’s top three sectors account for 50%. JEPI and SCHD share two of the same top three sectors and hold relatively the same portfolio composition in those sectors.

 

Likewise, we can look at each fund’s top 10 holdings to see how they differ.

 

Company SCHD Company JEPI
Broadcom Inc 4.44% Amazon.com Inc 1.68%
AbbVie Inc 4.19% Microsoft Corp 1.66%
The Home Depot Inc 4.17% Intuit Inc 1.63%
Texas Instruments Inc 4.17% Trane Technologies PLC Class A 1.60%
Amgen Inc 4.05% Progressive Corp 1.55%
Merck & Co Inc 4.04% Mastercard Inc Class A 1.54%
Cisco Systems Inc 3.94% Accenture PLC Class A 1.52%
Chevron Corp 3.88% Adobe Inc 1.51%
PepsiCo Inc 3.80% Visa Inc Class A 1.47%
Coca-Cola Co 3.79% AbbVie Inc 1.42%
Total 40.47% Total 15.58%

 

JEPI and SCHD only have one stock in common among their top 10 holdings, AbbVie Inc. Another key distinction is that SCHD is heavily concentrated in its top 10 holdings compared to JEPI. SCHD holds 40% of assets in its top 10 holdings, whereas JEPI only holds 16%.

 

Overall, if diversification is a top priority, then JEPI is a better option since it is more diversified among sectors and holdings, including its ten largest holdings. Another benefit of JEPI is that it is an actively managed fund that uses a bottom-up fundamental research process and proprietary risk-adjusted stock rankings to select its holdings rather than an index.

 

Minimum Investment – Tie

 

Both JEPI and SCHD require a minimum investment of $1.00. Since these are both ETFs, they can be traded on fractional shares, allowing for even the smallest investment.

 

Expense Ratio – SCHD

 

SCHD has a clear advantage with an expense ratio of 0.06% compared to 0.35% of JEPI.

 

So why is SCHD significantly cheaper than JEPI? The key reason is that SCHD is a passively managed fund that tracks the performance of an index. JEPI,  on the other hand, is an actively managed fund. Actively managed funds are more expensive due to the time and effort that goes into the holding selection process compared to a passively managed index ETF like SCHD.

 

Trading and Liquidity – Tie

 

JEPI and SCHD have the same trading and liquidity characteristics since they are both ETFs.

 

Investors 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).

 

ETFs’ trading flexibility doesn’t come without drawbacks, though—they typically trade 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.

 

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 significant 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.

 

Since both JEPI and SCHD are ETFs, they offer the same tax advantages and efficiencies.

 

Tax Loss Harvesting – Tie

 

As ETFs, both SCHD and JEPI 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. This is commonly called T+2, and it may take one or two days before you have access to the funds.

 

If you prefer the tax-loss harvesting rules of a mutual fund, opting for a similar S&P-indexed mutual fund might be a better option.

 

Performance & Dividends – SCHD (Returns), JEPI (Dividend Yield)

 

The performance of an investment option is often one of the most critical aspects investors consider. For JEPI and SCHD, two dividend ETFs, the priority is their income generation and dividend yield. But it’s still worth looking at the performance of annual returns.

 

Before we compare JEPI’s and SCHD’s performance, it’s important to consider that JEPI was founded in 2020. Hence, it has a limited performance history compared to SCHD, which started in 2011.

 

The table below shows the total annual returns between JEPI and SCHD.

 

Total Return by NAV
Year JEPI SCHD Delta
2023 9.81% 4.57% -5.24%
2022 -3.52% -3.23% 0.29%
2021 21.50% 29.87% 8.37%
2020 N/A 15.08%
2019 N/A 27.28%
2018 N/A -5.56%
2017 N/A 20.83%
2016 N/A 16.44%
2015 N/A -0.31%
2014 N/A 11.69%

 

From the table above, you can see that SCHD has a clear advantage in annual returns. Using the three years of performance, SCHD has outperformed in two out of the three years. In 2023 JEPI outperformed SCHD by 5.24%.

 

The table below will show the dividend yield for both ETFs.

 

Year JEPI SCHD Delta
2023 10.59% 3.49% -7.10%
2022 9.07% 3.58% -5.49%
2021 7.16% 3.15% -4.01%
2020 2.29% 2.87% 0.58%
2019 N/A 3.34%
2018 N/A 2.91%
2017 N/A 2.66%
2016 N/A 2.85%
2015 N/A 2.82%
2014 N/A 2.57%

 

The table shows that every year since its inception, JEPI has outperformed SCHD by an average of 5.53%. While the performance history is limited, JEPI has consistently had a dividend yield of 7% or higher, whereas SCHD has never had a dividend higher than 4%.

 

Since JEPI is a relatively new ETF, many have questioned whether it can maintain these high dividend yields. Since JEPI is an actively managed fund, while dividend yield may come down over time, it’s likely to perform higher than SCHD.

 

JEPI vs SCHD: Where Should You Invest?

 

JEPI and SCHD are ETFs that aim to generate consistent, high-quality dividends. So, how do you decide which dividend ETF to invest in?

 

JEPI and SCHD have some very distinct characteristics that will help you determine which ETF is best for you.

 

First, JEPI is an actively managed fund that started in 2020, while SCHD is a passively managed index ETF that started in 2011. This is important because JEPI has significantly less performance history than SCHD, making it hard to predict trends compared to SCHD.

 

JEPI also has a significantly higher expense ratio than SCHD at 0.35% compared to 0.06%. As an actively managed fund, significant time and research goes into the stock selection process for JEPI compared to SCHD, which uses an index to baseline its ETF.

 

JEPI’s actively managed fund also results in a more diversified portfolio than SCHD. JEPI is less concentrated in the top 10 holdings, with only 16% of assets, compared to SCHD, which holds 50% of assets in the top 10 holdings.

 

The final key difference is that it generates a higher dividend yield. Over the last three years, JEPI has outperformed SCHD in dividend yield by an average of 5.53%. JEPI has consistently had a dividend yield of 7% or higher, whereas SCHD has never had a dividend higher than 4%.

 

Overall, SCHD is a better option if you are looking for a passively managed ETF with a low expense ratio and consistent performance over the last ten years.

 

If you want an actively managed ETF with a high dividend yield over the last several years and a well-diversified portfolio, then JEPI is a better option.

 



 

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