JEPQ High Income ETF to REPLACE the QQQ in 2024 (DO THIS NOW)

Summary

The video discusses using the JPMorgan Equity Premium Income ETF (JEPQ) to rebalance portfolio risk in the current economic environment. It explains how JEPQ provides exposure to AI and tech growth while also generating substantial dividend income to cushion volatility. The host analyzes JEPQ's performance compared to QQQ and S&P500, noting its lower volatility and competitive total returns. With high rates pressuring value stocks, the video advocates holding JEPQ for continued tech exposure rather than rotating fully to value, using the dividends as cash reserves to DCA if a correction occurs.

Takeaways

• 😀 JEQ ETF provides strong exposure to AI growth while cushioning volatility
• 💡 JEQ dampens QQQ volatility through covered calls and secondary screening
• 📈 JEQ has outperformed S&P 500 since inception and kept pace with QQQ
• 👍 JEQ's 10% dividend yield gives extra protection against market drops
• ⚠️ Rising rates negatively impact value stocks - avoid rotating into them
• 🤔 Psychological challenge of buying at all-time highs - JEQ helps ease this
• 🔄 JEQ good for portfolio rebalancing to balance growth and risk mitigation
• 💰 Accumulate JEQ's dividends in cash to DCA back in case of correction
• 🗓 October 2024 predicted as period of high volatility - worth watching
• 😊 JEQ or HSKA good alternatives to QQQ for dampened volatility

Q & A

What are some benefits of high income ETFs?

High income ETFs provide consistent cash flow, which is especially beneficial for retirees and income investors. They also allow for portfolio rotation and rebalancing to mitigate volatility.

Why is portfolio rotation difficult in the current economy?

Growth stocks related to AI are continuing to rally to all-time highs. Meanwhile, rising interest rates are negatively impacting value stocks, making a rotation from growth to value less appealing.

How does the JEPI ETF work?

JEPI invests in the NASDAQ 100 and sells out of the money call options against its holdings to generate income. It uses equity-linked notes rather than stock options, so no shares are called away.

How has JEPI performed compared to QQQ?

JEPI has outperformed the S&P 500 since inception and kept pace with QQQ despite using covered calls. It cushions volatility while still allowing strong growth potential.

How does JEPI lower volatility?

JEPI screens and weights its holdings differently than QQQ to be less top-heavy. It also generates significant dividend income. Together, these lower annualized volatility by 40% vs QQQ.

Why is JEPI a good choice for rebalancing now?

It provides continued exposure to AI/tech growth while also mitigating downside risk. The dividend income can be held as cash to dollar cost average back into growth stocks if a correction occurs.

What is the vix term structure suggesting about late 2024?

The vix term structure shows investors are pricing in high volatility in October 2024, possibly due to the election. This is a key risk event for investors to monitor.

Would value ETFs be a good sector to rotate into now?

No, rising interest rates and other factors are creating additional downward pressure on value stocks. Rotating into value would be an inferior choice currently.

What should investors do if JEPI seems too risky?

For even lower volatility, the QYLD ETF is another alternative. It dampens QQQ volatility more than JEPI, while still providing tech exposure.

Outside of a black swan event, what is the outlook for AI stocks?

The AI movement continues to grow rapidly. Unless a major unexpected event occurs, this momentum likely persists for some time still.

Outlines

00:00

📈 Overview of high income ETF benefits and need for portfolio rebalancing

The paragraph provides an overview of the benefits of high income ETFs, especially for retirees and income investors. It also discusses the importance of portfolio rebalancing and rotation between growth and value assets to mitigate volatility and maximize returns. The author argues this process is complex in the current economy and high income ETFs should be the new focus for rebalancing.

05:01

📉 How JEPI works and why it's good for portfolio rebalancing now

This paragraph explains how the JEPI ETF works - it invests in NASDAQ stocks and sells out of the money call options to generate income distributed as dividends. It uses equity-linked notes so no shares are called away. The author argues JEPI is perfect for rebalancing now because it provides risk-averse exposure to AI/tech while limiting downside exposure.

10:04

🔮 Interesting chart shows investors pricing in volatility in October 2024

The paragraph briefly notes the AI movement and JEPI/QQQ are still strong bets unless a Black Swan event happens. It then highlights an interesting VIX chart showing investors are pricing in high volatility in October 2024, possibly due to the election. The author will cover this chart in more detail in the next video.

Keywords

💡portfolio rotation

Portfolio rotation refers to adjusting the allocation between different assets in a portfolio over time in order to maintain desired levels of risk and return. This is crucial for mitigating volatility and maximizing growth. The video discusses how high income ETFs like JEPI can be used to rotate portfolio risk in the current economic environment.

💡AI boom

The video refers to an ongoing AI boom that is powering growth in the stock market and economy. This boom is expected to continue, so maintaining exposure to AI and tech stocks is considered essential.

💡interest rates

Rising interest rates have a negative impact on value and dividend stocks and ETFs. Therefore, rotating from growth into value to reduce risk may not make sense in the current environment of high rates.

💡inflation

Persistently high inflation could lead the Federal Reserve to raise interest rates further, causing additional pressure on value stocks.

💡volatility

The video aims to show how the JEPI ETF can dampen volatility relative to the QQQ ETF, providing a way to maintain growth exposure while reducing risk.

💡AI correction

Even if there is a market correction, the video argues that the AI boom is likely to continue strongly. Therefore, investors should not let correction fears scare them out of AI-focused growth stocks.

💡dollar cost averaging

Dollar cost averaging into ETFs like JEPI can take advantage of growth while using the dividend income as cash savings to deploy if a correction happens.

💡amplitutde compression

JEPI compresses the amplitude of QQQ's price chart, cushioning downside but giving up a bit of upside. This dampens volatility exposure.

💡risk metrics

Various risk metrics like standard deviation show JEPI has lower risk characteristics than QQQ. This supports the goal of maintaining growth exposure while reducing risk.

💡VIX

The video notes high expected volatility in October 2024 based on the VIX futures term structure. This potential spike warrants investor attention.

Highlights

Portfolio rotation and rebalancing is crucial for mitigating downside volatility and maximizing growth

High income ETFs should be the new step investors prioritize for portfolio rebalancing in current economy

JepQ provides AI movement exposure while limiting downside risk thanks to covered call options strategy

JepQ outperforms S&P 500 since inception and keeps up with QQQ despite using covered calls

JepQ secondary screening strategy gives slight performance advantage over QQQ

JepQ cushions QQQ volatility while still capturing strong growth potential

JepQ has superior risk metrics compared to QQQ - lower volatility and standard deviation

Dollar cost averaging into JepQ provides AI exposure with less downside risk than QQQ

JepQ's high dividend yield cushions corrections and increases in volatile markets

Rotate to bonds over value stocks currently due to factors like high interest rates

AI growth expected to continue barring black swan event significantly impacting markets

Abnormally high volatility priced into markets in October 2024 - concerning sign

PCE inflation data release on Feb 29 could significantly impact markets if higher than expected

Value ETFs likely to take hardest hit if PCE data signals sticky inflation and higher rates

Consider HDJP over JepQ if seeking to further dampen QQQ volatility

Transcripts

I've been a very big fan of high income

ETFs and I have talked a lot about the

various benefits that these Investments

provide especially for retirees and

income investors who want to emphasize

consistent cash flow but there's also a

very important added benefit with these

ETFs that I think every investor should

take full advantage of especially moving

into 2024 as talks of a common

correction are growing and as we cross

into extreme greed territory so this is

where I want you to pay close attention

one of the most important concepts of

successful long-term investing is

portfolio rotation and rebalancing and

this simply involves adjusting the

composition of your portfolio by

changing the allocation between

different Assets in order to maintain

desired levels of risk to return

typically from growth to value and vice

versa and a strategy such as this one is

crucial for mitigating downside

volatility and maximizing growth but

this isn't a straightforward process in

fact it can be rather complicated and in

today's economy with the boom of AI

carrying the entire Market to all-time

highs coupled with high interest rates

the simple growth to value concept

doesn't make sense anymore this is very

important and this is where I think that

high income ETFs should be the new Step

investors need to prioritize in this

process so today I'm going to talk about

one specific ETF that can help

accomplish this and potentially be a

core holding in every Investor's

portfolio moving forward I mean this ETF

is accumulating funds at an insane pace

so clearly there's a very specific

interest in it and this brings me to

jeq which is the JP Morgan NASDAQ Equity

premium income ETF yes Jeb Q can be the

perfect way to rebalance portfolio risk

in the current economic environment

emphasis on current and this is simply

because you're getting risk averse

exposure to the AI movement you see as

markets continue to hit record highs

fear of a correction naturally grows but

the problem is that we simply don't know

when the correction is going to happen

but on top of that there's two other

major problems for one many would assume

that rotating out of growth and into

value in times like this would be the

ideal way to navigate the growing risk

but right now there's a variety of other

other factors that are negatively

affecting the value sector most notably

High interest rates ever since the

10-year treasury bottomed at around 3.8%

at the end of 2023 we have seen a

consistent upward momentum now closing

in at 4.3% the yield curve is steepening

even more and this signals that

investors are becoming less confident

about rate cuts which isn't good news

for value and dividend ETFs in fact as

treasury yields stay above 4% there's a

constant downward pressure on value

Investments and the reason is strictly

because investors who typically buy into

these stocks for risk mitigation and

income generation are able to get higher

returns in short duration bonds thanks

to high interest rates without taking on

any risk and now the probability of

higher interest rates for longer is

increasing due to a booming economy and

sticky inflation also side note pce

inflation data will be released on

February 29th and if it comes in higher

than expected like the previous CPI data

then it can have a significant impact on

the overall market and I'm very certain

that value ETFs will take the the

hardest hit and treasury yields will

Spike up also remember that most of the

amazing returns from ETFs like SD were

in the 2010s which were periods of

record low interest rates so that is why

I think that maintaining exposure to

growth is essential today more and more

companies are going to incorporate AI to

boost sales and revenue that is why not

too long ago I made a video going over

the benefits of focusing on ETFs like

dgro instead of SD for 2024 simply

because it has more exposure to this AI

movement but the second problem is

psychological it becomes increasingly

difficult for people to justify

purchasing shares of growth stocks and

ETFs at record highs You're simply

wondering is it going to keep going up

or should I maybe wait for a dip first

my thinking is that the AI climate is

still very strong and you cannot let a

correction scare you out of a bull run

and there is a chance that the

correction might be small so the

question is how can you continue to get

maximum exposure to the growth of AI

without removing yourself from this

rally and minimizing your risk exposure

so this is where Jep Q comes in I have

have been watching Jep Q's daily

performance and I have been very

impressed to say the least in fact

surprised by its resilience at times so

let me explain I've talked about this

ETF before but for those that are new we

are going to briefly run through the

fundamentals so that you can get a

better understanding before moving

forward to begin jeq is a very new fund

and it was established in May of 2022

but it currently has almost 11 billion

of assets under management the money

just keeps flowing into the CF at a

staggering pace which is a very good

sign because it's showing growing

interest from Big investors now the ETF

has an expense ratio of

0.35% and a monster dividend yield of

almost 10% so how does this ETF work jeq

invests in stocks within the NASDAQ 100

and sells out ofth the money call

options against its underlying Holdings

and collects a substantial amount of

Premium income which is then distributed

to investors as a dividend yield but it

uses something called elns which are

equity-linked notes long story short

this ETF isn't using stock options but

rather it is using index options and and

there's really only one major difference

here index options don't require you to

sell any shares in the event that the

price of the underlying index exceeds

the strike price of the call options so

no Shares are called away instead

everything is settled with cash and the

cash settlement is the difference

between the closing price of the index

and the strike price of the call option

now I do have a video that explains this

in full detail and you can check it out

right

here but the overall outcome is

relatively the same now as we all know a

covered call ETF limits upside potential

but depending on the covered call

strategy you can still position yourself

to benefit from upward movement and that

is why I have always put a very heavy

emphasis on covered call ETFs that use

out of the money options because they

provide wiggle room for growth but

cushion down their volatility with the

use of the income generated from the

options Jep Q uses up to 20% of its

entire assets selling call options

against the NASDAQ 100 index and these

options are typically 5 to 15% out of

the money depending on the portfolio

manager's decision so now that you

understand how the ETF works

why is it the perfect investment for

rebalancing in today's economic

environment when you look at Jeet Q's

performance in comparison with the QQ

and the S&P 500 it has been phenomenal

outperforming the S&P 500 since

Inception and managing to keep up with

the QQQ despite its use of covered calls

its Holdings are very similar to the QQQ

with a few minor differences primarily

in healthcare and consumer cyclical so

you're getting the same exposure as you

would with the QQQ thus you are getting

fantastic exposure to the AI and

semiconductor movement of course the

percentage allocation in each of these

sectors is significantly less because

20% of its assets are going towards

Equity link notes but here's what's

interesting Jeep Q actually employs a

secondary screening strategy where it

changes its allocation towards

individual stocks which at times gives

it a slight advantage over the QQQ and

you can see that when you look at the

price returns of the ETF side by side

and by Price return I am strictly

focusing on nav and excluding any

dividend distributions so this is where

I was actually pleasantly surprised with

jq's performance you see at the

beginning of 2024 on this day where the

QQ took a 2% dive jeq only captured 50%

of it and fell 1% and we've seen this

happen quite a few times I was initially

under the impression that this ETF would

show the exact same price return as the

QQQ on a downtrend but cushion it with

the dividend yield but in fact the extra

steps the CF takes adds a secondary

layer of risk mitigation that is why

their Holdings aren't identical the QQQ

holds over 100 different stocks but Jep

Q only has 84 and Jep Q has less of its

Assets in its top 10 Holdings so it is

less topheavy therefore the effects of a

potential correction within any of these

AI Focus stocks is already minimized to

a certain degree now it's not a huge

difference but the benefits are still

there now when you add in the dividend

distribution you're getting even more

protection because of the large amount

of income so using Jeff Q's Inception

date for consistency and looking at the

two funds total returns you can see that

Jep Q is essentially compressing the

amplitude of qq's chart pattern you can

see that that in the bare Market of 2022

it cushioned the downside by almost 7%

but it also missed out on around 7% on

the upside so we can clearly see that

with this ETF your volatility exposure

is dampened but your growth potential is

still very strong now circling back to

risk one of the things I really enjoy

about Seeking Alpha is these tabs up

here that categorize investment

characteristics and when you look at

risk Jeep Q has a top rating of A+ while

the QQ has a rather low rating now if

you want to take advantage of these

amazing tools make sure you grab the

offer before it's gone you can get $50

off the Premium plan by signing up

through my link in the description down

below so all of the strategies that

Q uses lowers annualized volatility by a

significant amount almost by 40% more

than the QQQ on top of that you have a

superior standard deviation score and

for those that don't know standard

deviation quantifies the historical

volatility of an etf's returns so in

other words it provides insights into

the potential range of returns for an

ETF assisting investors in setting

performance performance expectations

very important and this is exactly what

you want when you're trying to navigate

a market that is hitting all-time highs

and preparing for a possible correction

without rotating into an inferior sector

so dollar cost averaging into Jeep Q as

opposed to the QQQ will still give

investors strong exposure to this AI

craze that could easily continue for

some time then holding the dividend

income as cash in a high interest

savings ETF now this is more

conservative but you can also just DCA

back into Jeep Q or the QQQ it's up to

you but but if we see a correction then

you can dollar cost average back into

the QQQ or any other growth stock with

the cash that you have reserved that is

already steadily growing and taking full

advantage of the high interest rates we

currently have but at no point would you

sell rotate out into the value sector or

expose yourself to more value stocks

because there's just too many factors

that can put an added downward pressure

in that sector and that is why jeppy may

now be an inferior Choice given its

focus on value Investments also remember

that in the event the market does suffer

a significant correction your dividend

income will increase because of the rise

in volatility now if Jeff Q is too risky

for you then another perfect alternative

would be H because this ETF dampens the

volatility of the QQQ even more so

overall right now the AI movement is

continuing to grow and unless there's

some sort of Black Swan event that would

significantly impact the markets I don't

see it slowing down now on a side note

there is something everyone needs to

look out for mark your calendars because

I stumbled upon this vix term structure

chart that shows investors are already

pricing in a high level of volatility

come October of 2024 this could be due

to a number of factors like the election

but the spike is unusually high and we

will cover this in my next video because

it is very interesting and I think that

all investors should pay very close

attention to it and that is all for this

one if you haven't yet make sure you

subscribe to my channel and hit that

thumbs up button for the YouTube

algorithm thank you guys so much for

watching and I will see you in my next

one

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bye

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