An Income-Generating ETF Idea for These More Volatile Times | ETF Trends

An actively managed equity premium income exchange traded fund strategy can help investors generate a steady monthly income stream in this low-for-longer yield environment.

In the recent webcast, An Innovative Way for Investors to Generate Income, Samantha Azzarello, Executive Director, Global Market Strategist, J.P. Morgan Asset Management, outlined the current market conditions as we suffer through a recession with a -12.8% decline in real GDP after business activity peaked in February 2020. We see that high-frequency economic activity such as U.S. seated diners, TSA traveler traffic, total global flights, and hotel occupancy were among the hardest hit in this post-coronavirus pandemic world.

Meanwhile, the S&P 500 suffered a 33.9% price pullback, and despite the recovery in the equity markets, the CBOE Volatility Index or VIX shows an elevated 28 reading, compared to the historical average of 17.6. Additionally, many anticipate S&P 500 earnings to remain depressed for the year as corporate America readjusts to the new reality, so many are looking ahead to earnings growth returning by 2021.

For income-minded investors, many have turned to riskier assets to supplement yields in a prolonged near-zero interest rate environment. However, S&P 500 companies have cut dividends or suspended dividends to weather the storm this year.

Nevertheless, there are alternative strategies that may help enhance yields and provided reliable income generation. Hamilton Reiner, Managing Director, Portfolio Manager, J.P. Morgan Asset Management, highlighted the equity premium income investment philosophy that balances current income with capital appreciation. Specifically, the equity premium investment strategy seeks attractive yield via dividends and options premium and provides innovative income generation with no duration risk through a highly liquid equity portfolio, alongside lower volatility and beta than the S&P 500 Index. It can also act as a diversifier given low correlation to income alternatives.

Specifically, the recently launched JPMorgan Equity Premium Income ETF (JEPI) provides diverse opportunities to earn income from both dividends and options premiums. The JPMorgan Equity Premium Income ETF targets a significant portion of S&P 500 returns with less volatility, seeking annualized income distributed monthly. The fund leverages an experienced equity management team comprising more than 50 years of combined experience and headed by 32-year industry veteran Hamilton Reiner as the lead portfolio manager.

JEPI tries to generate income through a combination of selling options and investing in U.S. large cap stocks, providing investors with a monthly income stream from associated option premiums and stock dividends. Through its options overlay, JEPI could benefit from higher volatility to produce incrementally higher income. The fund managers try to construct a diversified, low volatility equity portfolio through a proprietary research process designed to identify over- and under-valued stocks with attractive risk-to-return characteristics.

Financial advisors who are interested in learning more about income-generating ideas can watch the webcast here on demand.