Want to dodge the market volatility and capture the upside? This JPMorgan ETF’s manager reveals how he’s doing it
In a week when investors are grappling with policy uncertainty surrounding President-elect Donald Trump’s decisive victory, JPMorgan has launched its popular Equity Premium Income ETF in Europe to help ride out the volatility while capturing some of the upside. The JPMorgan Asset Management’s U.S. fund, already the largest active ETF in the world, returned 21.5% in 2021, including 8.15% as income. In 2022, when the S & P 500 index nearly fell into a bear market, the fund lost just 3.5% in value. Over the past couple of years, the fund has returned 7% to 9% in income on top of capital appreciation. JEPI 5Y line The fund achieves such steady returns for investors using sophisticated options strategies that create what the fund manager calls “asymmetric” returns. “There’s an asymmetry associated with this strategy,” the fund’s lead portfolio manager Hamilton Reiner told CNBC. “Having a strategy that gives you a positive, up-down capture differential is incredibly valuable, not in down markets, not in flat markets, not in up markets, but actually in all markets.” The fund maintains a portfolio of stocks that loosely tracks the S & P 500 index. It then overlays this with an options strategy, selling index call options contracts on roughly 80% of the portfolio to generate additional income. While the fund doesn’t aim to outperform the S & P 500 in strong bull markets, the strategy typically operates with about two-thirds of the market’s volatility and lowers the downside while still capturing a significant portion of the upside. JPMorgan launched the ETF on the London Stock Exchange , Deutsche Borse in Germany and the Six Swiss Exchange this week to enable European investors to take advantage of the popular strategy. It currently manages $36 billion worth of assets in the U.S., with $4 billion flowing to the fund in the past year alone. The strategy’s expansion into Europe comes as investors on the continent are increasingly seeking income-generating alternatives. “Income as an outcome is something that investors across Europe have had a great desire for,” said Travis Spence, global head of ETFs at JPMorgan Asset Management. Spence stressed that JPMorgan did not intentionally time its entry into Europe on one of the most volatile weeks of the year for global markets. In addition to the U.S. Presidential elections moving markets, the Federal Reserve interest rate decision on Thursday is expected to impact stocks. “Regardless if it’s this week or last week or 10 weeks from now, the long portfolio is going to have [stocks] that’s going to be higher in quality, more defensive in nature, stocked with predictable earnings. Our holdings are not leaning red, blue or purple,” Reiner emphasized, highlighting the strategy’s political indifference to U.S. politics. “Our holdings are meant to have this fundamental bottoms-up type of approach,” he added. The strategy’s success has also increased investors’ interest in similar funds from competitors. One such fund is Global X’s covered call ETF XYLD , which marginally outperformed JPMorgan’s JEPI over the past two years. However, the Global X ETF, active since 2013, significantly underperformed JEPI in 2021 and 2022. Global X’s ETF is also listed across Europe in London , Germany , the Netherlands, Italy , and Switzerland . Reiner dismissed concerns about rising competition, saying JPMorgan’s size and infrastructure give it an edge. “At a place like JPMorgan, if you want to do an options strategy, you need a robust middle office, back office, clearance, custody, collateral management, cash management, corporate action, markets team and trading team to do something like this,” he explained. “Many of our copycats or competitors actually sub advise out the most important part of investing: investing!” “We don’t lead on income level or fees. We lead with the experience that’s consistent for our clients, and I think that is one of the key differentiators,” Spence added.
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