High Yield and Low Stress: 2 Dividend ETFs That Are Built for Passive Income

Core Viewpoint - The JPMorgan Equity Premium Income ETF (JEPI) and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) are attracting investors due to their high trailing-12-month dividend yields of 8.2% and 11.2%, respectively, and their provision of monthly income, appealing to passive income investors [1][19]. Group 1: ETF Structure and Strategy - Both ETFs invest up to 80% of net assets in equities, with JEPI focusing on S&P 500 stocks and JEPQ on Nasdaq-100 stocks, not specifically selecting stocks for their dividend yield [3][4]. - The remaining 20% of net assets are allocated to equity-linked notes (ELNs), which involve selling call options on the respective indexes, generating income through premiums collected [4][6]. - The strategy aims to provide sufficient income for distributions through a combination of premiums from ELNs and dividend income from stock holdings, with limited upside and downside [6][19]. Group 2: Performance Analysis - The ETFs are designed to demonstrate lower volatility than their respective indexes, with the monthly standard deviation for JEPI at 3.1% compared to 4.7% for the S&P 500, and for JEPQ at 4.2% compared to 5.7% for the Nasdaq-100 [20]. - Historical performance shows that the strategy is effective in generating positive returns during moderate market conditions, while limiting losses during significant market declines [16][19]. - Both ETFs have exhibited high R^2 values, indicating a strong correlation with their benchmark indexes, and have lower maximum monthly drawdowns compared to the indexes [14][20]. Group 3: Investor Implications - Despite the ETFs underperforming relative to the indexes, which had average monthly gains of 1.5% for the S&P 500 and 1.8% for the Nasdaq, they provide lower volatility returns and substantial dividends, making them suitable for passive income generation [18][19]. - The three most significant monthly drawdowns for JEPI are -6.4%, -4.2%, and -4.1%, while for JEPQ, they are -8.7%, -6.8%, and -6.6%, indicating a more stable performance during downturns [20].