I love generating passive income. Currently, I’m using that income to make more income-generating investments. My goal is to eventually earn enough income from passive sources to cover my daily living expenses. That will take the stress away have to work to pay the bills, which makes me much more financially independent.
I still have a long way to go, that’s why I will continue to make additional income-generating investments when I have spare cash. One place I put that money into is the JPMorgan Nasdaq Equity Premium Income ETF(NASDAQ: JEPQ). I recently bought more shares of the high yield stock exchange traded fund (ETF) and plan to buy more in the coming months.
JPMorgan Nasdaq Premium Income ETF is a fairly unique ETF. It aims for monthly distributable income and exposure to rapid growth Nasdaq-100 Index with less volatility.
The income comes from off-the-cash sales call options on the Nasdaq-100 index. As options seller, the fund is paid the option premium, which is the price. It writes these options at a strike price above the current level of the index (i.e. ‘out of the money’). If the index closes below the strike price at expiration, the fund gets to keep 100% of the income. The fund can roll over the option if the index closes above that level, generating more income. It’s a very repeatable monetization strategy.
Selling options can also be a very lucrative income strategy. This is evident from the fund’s current income performance. It has delivered an attractive dividend yield of 9.9% over the past twelve months. Meanwhile, the return over the past 30 days was an eye-popping 12.4%. That’s a much higher income return compared to other asset classes:
Like that graphic shows, its annualized return based on the last payment was much higher than that of high yield US bonds (junk bonds). It was also significantly higher than other income-oriented investments, such as the 10-year US Treasury bonds And REITs.
The ETF’s income payment fluctuates from month to month based on the option premium income it generates:
JEPQ Dividend Data according to YCharts
These payments tend to rise and fall based on volatility, as higher volatility increases option premiums.
The monthly income stream this ETF generates is its main draw. However, it is only part of the return. This ETF also provides equity exposure to many of the top stocks in the Nasdaq-100 index, which are among the best growth companies in the world.
The ETF does not aim to track that index, such as the Invesco QQQ Trust. However, it does own many of the top stocks in that index. For example, it is five largest assets are:
These are comparable to the top positions of the Invesco QQQ Trust. However, the fund has slightly different allocations compared to their weighting in the Nasdaq-100 index. That may have some impact on returns. For example, the ETF underperformed the Nasdaq-100 in the third quarter, partly due to its overweight Lam Research and an underweight position of Tesla. However, it also benefited from not having a position in Modern and overweight Oraclewhich had a positive impact on returns during the period.
Overall, the fund has delivered solid total returns, returning 24.3% this year and 17.2% annually since inception, compared to 25.3% and 21%, respectively, for the Nasdaq-100. Returns have increased. A $10,000 investment in this ETF at inception has grown to $11,320 today, while the income generated by the fund would have pushed the total value to $15,080. That’s a much higher total return than most income-oriented investments would generate, meaning the fund can generate income and grow an investor’s wealth. at the same time. While the fund’s stock market exposure also carries some stock market risk in the form of volatility, it also benefits from volatility, which increases the value of the call premiums on the Nasdaq-100.
The JPMorgan Nasdaq Equity Premium Income ETF is grow into one of my favorite funds for generating passive income. It pays a lucrative monthly benefit I expect will grow over time as the value of the fund’s investments increases, driven by its focus on the fast-growing Nasdaq-100. That combination of income and growth should allow me to achieve financial independence more quickly, that’s why I don’t plan on stopping buying more shares of this ETF anytime soon.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matt DiLallo has positions in Amazon, Apple, Broadcom, JPMorgan Nasdaq Equity Premium Income ETF, Moderna and Tesla and has the following options: short February 2025 $275 calls on Apple. The Motley Fool holds positions in and recommends Amazon, Apple, Lam Research, Microsoft, Nvidia, Oracle and Tesla. The Motley Fool recommends Broadcom and Moderna and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.
Why I Can’t Stop Buying This Ultra-High-Yield ETF Originally Published by The Motley Fool
