JEPQ High Income ETF to REPLACE the QQQ in 2024 (DO THIS NOW)
Summary
TLDRThe 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
📈 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.
📉 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.
🔮 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.
Mindmap
Keywords
💡portfolio rotation
💡AI boom
💡interest rates
💡inflation
💡volatility
💡AI correction
💡dollar cost averaging
💡amplitutde compression
💡risk metrics
💡VIX
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
[Music]
bye
[Music]
浏览更多相关视频
These Are My Favorite High Yield Monthly Dividend Stocks
4 SAFE High Yield ETFs - Pay My BILLS Every Month!
5 Dividend ETFs to Hold Forever - Easy Millions
$50,000 In SCHD Will Beat Your Full Time Job! 🔥
Hur mycket pengar du behöver för att leva på utdelningar (FÖR ALLTID)
Top 8 REITs for HUGE DIVIDENDS (Retire Early with Passive Income)
5.0 / 5 (0 votes)