{"id":16360,"date":"2023-05-31T16:23:10","date_gmt":"2023-05-31T20:23:10","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/jepq-a-defensive-strategy-to-own-mega-cap-tech\/"},"modified":"2023-05-31T16:23:11","modified_gmt":"2023-05-31T20:23:11","slug":"jepq-a-defensive-strategy-to-own-mega-cap-tech","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=16360","title":{"rendered":"JEPQ: A Defensive Strategy To Own Mega Cap Tech"},"content":{"rendered":"
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In a recent article I discussed strategies for investing during a choppy market. The prospect of sideways trading and increased volatility is becoming more realistic as some economic indicators deteriorate while others remain resilient. This dynamic has the consequence of sending mixed signals to the market, resulting in strongly differing opinions on the future direction of markets. As I suggested in that article, I think it makes sense to shift a portion of total returns from <\/span>potential<\/em> capital appreciation to current income.<\/span><\/p>\n

This can be done in numerous ways including focusing on high dividend payers and growers (with a focus on quality), increasing allocations within areas of fixed income, or seeking out alternative strategies to increase income.<\/p>\n

A fund that uses alternative strategies to generate income is the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ<\/span>). The fund is positioned to generate both growth and income, but with the focus mainly on income. It invests in U.S. mega cap growth\/tech stocks and generates income through collecting option premiums and dividends while holding the largest names in the Nasdaq 100 Index. The fund also uses equity-linked notes to obtain broad equity exposure, limit downside risk, and reduce overall portfolio volatility. The strategy\u2019s focus on current income makes it a defensive approach to owning some of the best companies within the mega cap growth space.<\/span><\/p>\n

As mentioned in my previous article, I typically do not suggest covered call strategies given that they can cap upside appreciation. However, given the potential for a sideways moving market and increased volatility, I think an allocation to such a strategy might make sense for some investors. Given the crosscurrents in the economy and financial markets, I consider this fund to be a ‘Hold’ at this time.<\/p>\n

Recent Performance<\/h2>\n

Recent performance for the fund has been strong, albeit materially below that of the unhedged Nasdaq 100 on a total return basis. This is to be expected given the rapid rise in the largest holdings and the nature of the strategy. With rapidly rising stock prices, there is a higher probability that positions will be called away, capping the appreciation of fund value.<\/p>\n

Longer performance data is not available as trading in the fund began in May of 2022.<\/p>\n

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\"Year-to-Date<\/span>
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Year-to-Date Total Returns: JEPQ versus QQQ versus S&P 500 (Seeking Alpha)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Holdings<\/h2>\n

JEPQ provides equity exposure to the mega cap tech names that are fast-growing while also generating substantial current income. The trailing 12-month yield on JEPQ is nearly 12%, while the fund has an expense ratio of 0.35%. The underlying equity portfolio, which is benchmarked to the Nasdaq 100, is invested across nearly 90 positions including 80 stocks and 8 other holdings. Those other holdings include positions in Nasdaq equity index-linked notes and money market shares.<\/p>\n

As expected, there is significant overlap between JEPQ and the Invesco QQQ ETF (QQQ) within the holdings. Where they diverge is with the inclusion of equity-linked notes for JPEQ that QQQ does not hold.<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n
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Equity Holding<\/strong><\/p>\n<\/td>\n

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% of JEPQ<\/strong><\/p>\n<\/td>\n

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% of QQQ<\/strong><\/p>\n<\/td>\n<\/tr>\n

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Microsoft (MSFT)<\/strong><\/em><\/p>\n<\/td>\n

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11.50%<\/p>\n<\/td>\n

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13.36%<\/p>\n<\/td>\n<\/tr>\n

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Apple (AAPL)<\/strong><\/em><\/p>\n<\/td>\n

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9.59%<\/p>\n<\/td>\n

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12.09%<\/p>\n<\/td>\n<\/tr>\n

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Alphabet Class C (GOOG)<\/strong><\/em><\/p>\n<\/td>\n

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7.12%<\/p>\n<\/td>\n

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4.05% (4.10% in class A)<\/p>\n<\/td>\n<\/tr>\n

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Amazon (AMZN)<\/strong><\/em><\/p>\n<\/td>\n

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5.66%<\/p>\n<\/td>\n

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6.67%<\/p>\n<\/td>\n<\/tr>\n

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NVIDIA (NVDA)<\/strong><\/em><\/p>\n<\/td>\n

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5.53%<\/p>\n<\/td>\n

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6.76%<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

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