Top-Performing Dividend Exchange-Traded Fund to Acquire for Passive Wealth Creation
Various passive income sources necessitate some degree of involvement, such as managing a rental property or a stock portfolio. Nevertheless, there are alternatives that are as idle as they come. With these, you merely sit back and watch the passive income flow into your account.
Exchange-traded funds (ETFs) present a considerably more relaxed method of generating passive income. One such individual is the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ, 0.82%). This ETF offers a significant monthly income stream, making it an excellent pick for those seeking passive income.
High-yielding monthly income stream
The JPMorgan Nasdaq Equity Premium ETF follows a dual mandate. It strives to deliver a monthly-distributable income and exposure to the Nasdaq-100 index with reduced volatility.
The fund employs an intriguing method to generate income for its investors. It sells out-of-the-money scrips on the Nasdaq-100 index. This tactic generates options-premium income that the ETF disburses to its investors every month. Options trading can be a highly profitable income strategy. Over the preceding 12 months, the ETF has provided a dividend yield of 9.7%. In the past 30 days, its yield was nearly 9.5%. This yield is highly appealing compared to other investment classes:
As the graph demonstrates, the fund's yield over the past month exceeds that of high-yielding U.S. bonds (i.e., junk bonds). Its yield also surpasses that of other higher-yielding investment vehicles, such as U.S. Treasury bonds and real estate investment trusts (REITs). It also surpasses the typical stock yield significantly.
It is worth noting, though, that the monthly payment can vary significantly:
This is because the income it generates varies based on volatility. The more volatile the market, the higher the premiums for options tend to be. As a seller of options, it can collect more premium income when volatility is high. However, even in a low-volatility market, the ETF should still generate a substantial income because the Nasdaq-100 is a more volatile index than the S&P 500 due to its focus on growth stocks.
Lower volatility equity-market exposure
The JPMorgan Nasdaq Equity Premium ETF offers more than merely passive income. The fund also provides lower volatility equity-market exposure. It achieves this by holding an underlying equity portfolio selected by the fund's managers based on data science and fundamental research.
The ETF holds numerous stocks listed in the Nasdaq-100 index. However, it doesn't have the same weighting as those stocks in the index. This can either enhance or diminish its returns, depending on the performance of the underlying holdings in a specific period.
For instance, the ETF underperformed the Nasdaq-100 during the third quarter (1.6% total return contrasted with 2.1%). An overweight weighting to Oracle (ORCL -0.32%) boosted its results in the period. The technology company reported strong cloud-infrastructure revenue and set new long-term targets significantly above expectations. With the technology company anticipated to grow at a faster rate in the future, it could continue to contribute to the fund's results. In contrast, the fund didn't have a position in Moderna, which also augmented its results in Q3 due to the biotechnology stock's underperformance. On the other hand, an overweight position in Lam Research and an underweight position in Tesla impaired its results in Q3.
The ETF is likely to underperform the Nasdaq-100 during strong market periods. However, it should outperform during more volatile times. This helps make it a lower-risk way to invest in the top-growth stocks in the Nasdaq-100.
High-yielding income stream and potential growth
The JPMorgan Nasdaq Equity Premium ETF rewards its investors handsomely. It generates options-premium income that it disburses to investors each month. Additionally, it holds a portfolio of high-quality equities that should increase in value over time. This combination should afford investors the opportunity to earn a substantial passive income and a robust total return with less volatility over the long term, making it an appealing ETF to invest in.
This ETF, being the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ), is a great investment choice for individuals seeking passive income with a high yield. Its dual mandate includes delivering a monthly-distributable income and exposure to the Nasdaq-100 index with reduced volatility. Investors can benefit from the options-premium income generated by selling out-of-the-money scrips, resulting in a dividend yield of 9.7% over the past 12 months.
During periods of market volatility, the ETF can collect more premium income due to higher option prices. However, the monthly payment can vary significantly based on market volatility and the fund's underlying holdings' performance. The ETF provides not only a high-yielding income stream but also potential growth through its equity portfolio. Investors can expect a substantial passive income and a robust total return with less volatility over the long term, making the JPMorgan Nasdaq Equity Premium Income ETF an appealing investment for finance and investing purposes.
