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The JPMorgan Equity Premium (JEPI) and JPMorgan Nasdaq Equity Premium Income (JEPQ) ETFs have done well this year and are sitting at their all-time highs. The JEPQ fund soared to $55.30 on Friday, up by over 74% from its lowest point in 2023.

Similarly, the JEPI fund approached the key resistance point at $60, a strong 42% increase from last year’s low.These two funds have also had some strong inflows in the past few months, with JEPI adding $3.29 billion and JEPQ adding $7.7 billion this year. They now have $36 billion and $17 billion in assets.

Leading boomer candy ETFs

JEPI and JEPQ are the two leading boomer candy ETFs, which aim to provide investors with reliable dividends over time. JEPQ has a forward dividend yield of 9.4%, while JEPI yields 7.1%.

These monthly yields are substantially higher than the other popular dividend ETFs like the Schwab US Dividend Equity (SCHD) and the Vanguard Dividend Appreciation (VIG). 

Most importantly, these funds provide a higher return compared to US government bonds, which are yielding less than 5%.

JEPI and JEPQ use a simple approach to generate returns. First, the funds invest a portion of their cash to a group of stocks, benefiting from their uptrend. Second, they then sell call options and take the premium, which they distribute to their shareholders each month.

A call option is an investment that gives traders the right but not the obligation to buy an asset. In this case, if the price falls before the expiry, a trader can ignore the option and buy it at the market price. 

Also, if the price rises, the investor has a right to buy it at the initially agreed price and benefit from the upside.

The covered call option benefits investors by allowing them to profit from the upward trend of their investments. The strategy can also help reduce the downside when there is volatility by taking the option premium.

The main difference between JEPI and JEPQ is the assets they invest in. JEPI has invested in a basket of companies found in the S&P 500 index. Most of these firms are in the technology industry followed by financials, healthcare, and industrials. Some of the top names in the fund are NVIDIa, Amazon, ServiceNow, and Mastercard.

The JEPQ ETF, on the other hand, has invested in the companies in the Nasdaq 100 index, most of which are in the tech industry.

As shown above, the JEPQ and JEPI ETFs have had total returns of 19.25% and 14.90% this year. While this is a good return, they have underperformed the popular benchmark indices like the Invesco QQQM and Vanguard S&P 500 (VOO) ETFs, which have risen by 21% and 24%, respectively.

This performance mean that, despite their strong dividends, the boomer candy ETFs continue to underperform the benchmark indices that track the S&P 500 and Nasdaq 100 indices. 

Catalysts for the JEPQ and JEPI ETFs

Several catalysts could push these ETFs higher in the coming months. First, thousands of American companies are expected to publish their financial results in the coming weeks. 

These earnings have already started, with companies like JPMorgan, Goldman Sachs, and Morgan Stanley publishing robust financial results. According to FactSet, 14% of the companies in the S&P 500 index have already published their financial results. 79% of these have reported a positive EPS surprise, while 64% have reported a positive revenue surprise. 

The blended earnings growth was 3.4%. While this is a weaker earnings growth than in the last few quarters, it is also the fifth consecutive quarter of earnings growth. Therefore, there is a likelihood that most companies will publish strong financial results.

Second, these funds will likely benefit from the actions by the Federal Reserve and other central banks. The Fed has already delivered a jumbo 0.50% rate cut, and officials signal to several more cuts in the next few meetings. Data by CME shows that the Fed will lower interest rates to about 3.25% by December next year.

Other central banks are also cutting rates. Last week, the ECB slashed rates by 0.25% and hinted that more were coming. In China, the PBoC has also cut rates and unveiled a series of stimulus packages to boost the economy. 

Third, the US election is coming up in the next few weeks. In most periods, stocks show some volatility ahead of the election and then stage a fresh rally as investors embrace the new normal in the market. 

Therefore, the JEPI, JEPQ, and other benchmark ETFs may continue to perform well in the near term. However, as I have written before, if your goal is to generate good total return, then you are safer investing in S&P 500 and Nasdaq 100 indices. JEPI and JEPQ are better if your goal is to generate better returns than government bonds and other dividend funds.

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