For years, European investors have had to look with jealousy across the pond to access the popular JEPI ETF, which has garnered a loyal following for its consistent high-yield income stream. But now, the wait is (almost!) over. JP Morgan Asset Management has launched the JPM Global Equity Premium Income UCITS ETF (JEPG, JPGP or JGPI – depending on the currency), a European-listed equivalent of the US-based JEPI ETF, allowing European investors to reap all the benefits of this unique investment vehicle.
JEPI etf’s popularity explained
The US-based JEPI ETF has amassed over $30 billion in assets under management since its inception in 2020, and there are several reasons for its widespread appeal. Most importantly, I see the following 3 reasons:
- Consistent Income Stream: JEPI targets a distribution yield of 7-9% annually, paid monthly. This makes it an attractive option for investors seeking a monthly stream of income. There are not too many dividend stocks that offer a similar monthly income.
- Actively Managed Approach, yet Passive: there are quite some retail investors that use option selling as an additional form of income generation. However, this requires a lot of time and continuous focus to avoid unwanted portfolio impact. JEPI offers this additional income from call option selling via its ETF thus saving retail investors lots of time.
- Low Costs to Own: $JEPI charges a 0.35% expense-ratio fee to retail investors. This is relatively low for an actively management fund.
What is the JEPG ETF about?
According to JP Morgan, “JEPG provides investors access to a defensive equity portfolio which aims to provide a solution for income-seeking investors, while reducing total equity risk. The portfolio managers invest in a defensive equity portfolio which employs a time-tested, bottom-up, fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings. A disciplined options overlay implemented by writing out-of-the-money MSCI World Index call options that seeks to enhance distributable monthly income.”
In simple terms, this ETF invests in typical blue chip stocks and it writes call options for additional income. As of today (8-december-2023), its top 10 holdings are:
- Deutsche Telekom
- United Health Group
- Nippon Telegraph
- Roper Technologies
- Cisco Systems
- Motorola Solutions
- Johnson & Johnson
- Roche Holding
Together they make up 14% of the entire JEPG UCITS ETF.
JEPG etf: The JEPI UCITS equivalent available to Europeans
As you can see, the launch of the JEPG etf provides European investors with direct access to a similar strategy as JEPI. The main difference is that JEPG is investing in stocks around the globe, while JEPI is focused on US stocks. That also explains the difference in its call-writing strategy, because JEPG writes calls on the MSCI World Index while JEPI writes calls on the S&P 500 index.
What’s more? The JPM Global Equity Premium Income UCITS ETF is domiciled in Ireland (ISIN: IE0003UVYC20), which offers a favorable tax structure for most European investors. This makes JEPG a compelling investment option for Europeans seeking income-generating potential with potential capital appreciation.
Key Risk to Consider when investing in JEPG, JEGP, JGPI or JEPI
While JEPG offers attractive income and growth prospects, it’s important to acknowledge the inherent risks associated with its underlying strategy. Firstly, its total return track record is not as strong as some people may suggest. Just have a look at the below Year-to-date returns of the $JEPI etf vs $SPY (S&P 500 index):
Hence, this year the ETF has significantly underperformed. However, since its inception, it looks better because JEPI generated an 8.99% total return while the S&P 500 index generated 9.48%.
This is not adjusted for tax though! If we look at purely capital appreciation, then it looks much worse:
This is key to consider because you will have to pay the dividend withholding tax on the income generated from JEPG. For many of us, that makes the above total return numbers lower.
Secondly, JEPI doesn’t perform well regarding capital appreciation. In my opinion, this is because a call-writing strategy limits upside potential. JP Morgan mitigates this by composing the ETF with defensive and less volatile stocks than the average market, but its track record shows that it may not be enough.
Where to Buy JEPG?
Great news, European investors can buy the JEPG ETF (or JGPI, JEGP) through Interactive Brokers. No surprise here, because IBKR is in my opinion one of the best European brokers out there. Hence, feel free to Open an account at Interactive Brokers if you haven’t got one yet.
Investing involves risk of loss.
It’s also good to know that JP Morgan has launched the JEPG ETF in multiple currencies:
|London Stock Exchange
|London Stock Exchange
This means that the additional currency-related costs are with JGPI etf, which theoretically makes it cheaper for you as an investor.
With the launch of JEPG, European investors have finally gained access to a $JEPI equivalent income-producing investment option. This is great news because we aren’t second-grade global citizens and we deserve to have access to a broad spectrum of wealth-generating equities.
Personally speaking though, I’m not a big fan of these kind of investment vehicles, because it lacks the “growth” component for me. I much prefer a starting yield between 3% and 5% with the opportunity for consistent growth rather than a relatively flat high yield with hardly any capital growth.
But who knows! I may still consider it in the future as a way to spice up my dividend-growth portfolio.
European Dividend Growth Investor