Nvidia (NASDAQ: NVDA) is a dividend stock, but not one that will be attractive to many income investors. The chipmaker’s future dividend yield is a paltry 0.029%.
Is there a way to own Nvidia stock? And receive exceptional income? Actually yes. Meet an exchange-traded fund (ETF) that is heavily invested in Nvidia and – believe it or not – offers an ultra-high return of 8%.
I won’t keep you in suspense. The ETF I’m talking about is the JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI). JPMorgan Chase launched the fund in May 2020 to provide investors with monthly distributions, equity market exposure and relatively low volatility.
This ETF is indeed heavily invested in Nvidia. The share is currently the second largest holding, but it is neck and neck Trane Technologies for first place.
The JPMorgan Equity Premium Income ETF holds a total of 133 stocks. Other top positions include: Progressive, Southern Company, Metaplatforms, MasterCardAnd Amazon. Nearly 15% of the portfolio is invested in information technology stocks. The fund also owns stocks representing more than 11 other sectors.
Unlike many ETFs, this one does not attempt to track the performance of an index. The portfolio is constructed based on what JPMorgan Chase calls a “proven, bottom-up fundamental research process, with stock selection based on our proprietary risk-adjusted stock rankings.”
This stock selection process has worked quite well. Since its inception, the JPMorgan Equity Premium Income ETF has delivered an average annual total return of nearly 13.4%.
You may be wondering how the ETF can afford such a juicy return. After all, most of the top positions mentioned do not offer an attractive dividend yield. Amazon pays no dividends at all. The one exception is Southern Company, but its forward dividend yield of 3.06% is well below the JPMorgan Equity Premium Income ETF’s 30-day Securities and Exchange Commission (SEC) yield of 8%.
There is a simple answer: derivatives. The ETF writes out-of-the-money call options on the S&P500 generate income. These options give the buyer the right (but not the obligation) to purchase the S&P 500 at a price higher than the current price. This approach means the JPMorgan Equity Premium Income ETF’s returns can be handily better than what you can get from S&P 500 ETFs, U.S. Treasuries, or most global real estate investment trusts (REITs).
Morningstar awarded the JPMorgan Equity Premium Income ETF five stars for its derivatives income fund category. That is the highest possible rating.
Granted, the ETF’s expense ratio of 0.35% doesn’t reflect its extraordinarily low costs. However, it is important to note that the 30-day SEC yield is 8% after all expenses.
These expenses include paying the ETF’s two exceptional portfolio managers. Hamilton Reiner has 37 years of experience in the financial industry, including 15 years at JPMorgan Chase. Raffaele Zingone has worked in the industry for 33 years, all at JPMorgan Chase. Both men have managed the JPMorgan Equity Premium Income ETF since its inception.
Now for the inevitable caveats necessary to any discussion of this ETF. Most importantly, the fund may not perform as well in the future as it has in the past. The stock market has skyrocketed over the past four years, a relatively short period that is not necessarily representative of realistic long-term returns.
Similarly, the impressive returns you can currently receive with the JPMorgan Equity Premium Income ETF may not always be that high. Since the launch of the ETF, returns have sometimes been significantly lower.
And if you want to own a share of Nvidia through an ETF, there’s no guarantee that this JPMorgan fund will always invest in the chipmaker. The ETF’s turnover ratio (the percentage of the fund’s investments sold and replaced with new shares) for the twelve months ended June 30, 2024 was 174%.
Still, the JPMorgan Equity Premium Income ETF could appeal to many income investors. If you want to own a position in Nvidia and enjoy sky-high returns, this might be the best alternative out there.
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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. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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. Keith Speights has positions in Amazon, Mastercard and Meta Platforms. The Motley Fool holds positions in and recommends Amazon, JPMorgan Chase, Mastercard, Meta Platforms, Nvidia, and Progressive. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
Meet an ETF That’s Invested Heavily in Nvidia and—Believe It or Not—Offers an Ultra-High 8% Yield Originally published by The Motley Fool
