I love collecting passive income. It’s nice to get paid for work you didn’t have to do. I enjoy generating passive income so much that my main financial goal is to eventually earn enough each year to cover my recurring expenses. This way I don’t have to work to live.
I still have a long way to go. However, I get it a little closer to my goal every month while growing my passive income. I focus on investing in companies and funds that offer higher yielding payments that should increase steadily over time. One of my more recent income-oriented additions is the JPMorgan Nasdaq Equity Premium ETF (NASDAQ: JEPQ). I plan on buying more of that high yield exchange traded fund (ETF) in June. This is why I would like to expand my position this month.
A high-yielding income stream
The goal of the JPMorgan Nasdaq Equity Premium ETF is quite simple: it seeks to provide monthly income for investors and exposure to the Nasdaq-100 Index with less inconstancy.
The fund generates income by writing out-of-the-money call options on the Nasdaq-100 index, which contains the 100 largest non-financial stocks listed on the growth-oriented Nasdaq stock exchange. This strategy allows the company to earn lucrative premium income from options, which it distributes to investors every month. The most recent payment had a dividend yield of approximately 9.6%. That is a much higher return than other investment categories:
Over the past year the return has been even higher (the twelve-month rolling dividend yield is 10.1%).
One disadvantage, however, is that the fund’s distributions fluctuate from month to month. They are higher in months following periods of increased volatility (higher volatility typically yields higher option premiums).
This ETF should continue to generate attractive income returns, with monthly payments likely to increase over the long term as the value of the fund increases.
High growth (with less volatility)
JPMorgan Nasdaq Equity Premium ETF offers more than a tempting passive income stream. The ETF also offers equity upside potential to companies in the Nasdaq-100 index. Companies included in that index have historically outperformed the S&P500 in the long term (average annual total return of 18.8% in the past). 10 compared to 12.8% for the S&P 500). The fund holds a portfolio of stocks included in that index, selected based on a combination of applied data science and fundamental research.
The fund does not hold all of the stocks in the Nasdaq-100 index and does not seek to match the weighting of that index. Here’s how the top 10 stock holdings compare Invesco QQQ Trustan ETF focused on the Nasdaq-100 index:
|
JEPQ (% of net assets) |
Invesco QQQ Trust (% of assets) |
|---|---|
|
Microsoft (7.4%) |
Microsoft (8.7%) |
|
Nvidia (6.3%) |
Apple (8%) |
|
Apple (6.2%) |
Nvidia (7.2%) |
|
Alphabet (4.6%) |
Amazon (5.1%) |
|
Amazon (4.5%) |
Broadcom (4.6%) |
|
Metaplatforms (4%) |
Metaplatforms (4.5%) |
|
Broadcom (3.1%) |
Alphabet class A (2.8%) |
|
Advanced micro devices (2%) |
Alphabet class C (2.7%) |
|
Netflix (1.9%) |
Costco Wholesale (2.5%) |
|
Tesla (1.8%) |
Tesla (2.4%) |
Data source: JPMorgan and Invesco.
The fund’s allocation strategy could pay off for investors. For example, the JPMorgan Equity Premium Income ETF outperformed the Nasdaq-100 index in the first quarter (total return from 10.1% to 8.7%). It benefited from a higher weighting in Nvidia (which posted strong performance) and an underweight position in Nvidia Intel (who underperformed during the period).
The ETF’s managers believe their strategy will enable the fund to deliver strong longer-term returns with less volatility than the Nasdaq-100. The fund will benefit from volatility as it can generate more premium income from options. Meanwhile, the underlying portfolio of high-quality, faster-growing companies should deliver strong growth in the fund’s net asset value (NAV) over the long term.
Grow my income and my assets
The JPMorgan Nasdaq Equity Premium Income ETF produces a very attractive monthly income stream from the sale of call options on the Nasdaq-100 index. It also offers attractive potential for capital gains by actively managing a stock portfolio based on that index. These features should enable the ETF to help me achieve my passive income goals while growing my wealth. That combination of building wealth is why I can’t wait to add to my position this month.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, a director 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 spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Matt DiLallo has positions in Alphabet, Amazon, Apple, Broadcom, Intel, Jp Morgan Exchange-Traded Fund Trust-JPMorgan Nasdaq Equity Premium Income ETF, JPMorgan Chase, Meta Platforms, Netflix and Tesla and has the following options: long January 2025 $30 does a call on Intel, shortly January 2025, $30 will be made on Intel, and shortly June 2024, $50 will be made on Intel. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Costco Wholesale, JPMorgan Chase, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2025 $45 calls to Intel, long January 2026 $395 calls to Microsoft, short January 2026 $405 calls to Microsoft, and short May 2024 $47 calls to Intel. The Motley Fool has a disclosure policy.
1 Ultra-High-Yielding ETF I Can’t Buy Anymore in June was originally published by The Motley Fool
