High yield funds can be risky. In a perfect world, any ultra-generous dividend yield would be a direct result of strong companies generating lots of excess cash profits. In the real world, they are more often associated with low stock prices and companies in deep financial trouble. As a result, high interest rates are often accompanied by disappointing price charts and modest total returns at best.
What if I told you that one of the largest income-oriented Exchange Traded Funds (ETFs) on the market today combines rich returns with impressive price gains? The JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ) ticks both shareholder-friendly boxes – and more.
The Premium Income ETF is a very young fund, launched in May 2022. You may also have missed it in the vast sea of income-generating ETFs because it is an actively managed fund. Passive index funds tend to have lower annual fees, so it’s wise to start your fund screening process with that criterion.
But this JPMorgan The instrument could well be worth the 0.35% management fee. Here is a brief overview of the fund’s unique qualities:
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The Premium Income ETF’s experienced management team relies on data science to select high-income stocks from the growth-oriented equity markets. Nasdaq100 market index.
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Currently, 54% of the portfolio is invested in information technology and communications services – two market sectors closely linked to the ongoing artificial intelligence (AI) boom.
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The top 10 holding companies include the complete list of “Magnificent 7” stocks — proven winners with very large market capitalizations.
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Some of those tech giants don’t pay dividends, but the fund managers generate monthly income from them in other ways.
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The annual dividend yield currently stands at 9.3%, after rising above 12% in the summer.
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It has a massive $20.7 billion in assets under management, despite its short market history. Investors were quick to embrace this promising new fund:
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The dividend-boosting methods include some risky tricks, such as selling short-term call options to generate payments from volatile stocks. That’s great when it works, but it can also lead to poor fund performance And lower returns in a sustained market downturn.
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The fund was launched a few months earlier this bull market started. It has not yet been tested in a weak economy, which could unleash the downsides of options-based investing tactics.
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The 0.35% management fee may not seem like much, but it is well above the 0.06% average of today’s ten largest ETFs and even beyond that of low-cost funds like the Vanguard S&P 500 ETF (NYSEMKT:VOO). In fact, the compensation can make a big difference in the long run. The Vanguard fund’s 0.03% annual fee equates to 0.3% over ten years, while the Premium Income ETF’s fees would total 3.6% over the same period.