JP Morgan Asset Management has launched a new ETF in the US providing Nasdaq 100 exposure while seeking enhanced income and lower volatility.
The fund is the second options-enhanced US equity ETF from JP Morgan.
The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ US) has been listed on Nasdaq with an expense ratio of 0.35%.
Considered the world’s most pre-eminent growth index, the Nasdaq 100 consists of 100 of the largest US and international non-financial companies by market capitalization listed on Nasdaq, subject to various diversification requirements.
It reflects companies across major industry groups including computer hardware and software, communications, retail/wholesale trade, and biotechnology.
The Nasdaq 100 has soared in the past two years as the index’s technology and technology-enabled constituents prospered in the post-Covid economy – the index rose 135.1% from the market’s pandemic low on 23 March 2020 to the end of December 2021.
Performance in 2022 has been drastically different, however. The index fell as much as 21.1% (as of 28 April) but has recovered slightly and is currently down 16.9% (4 May).
Investment approach
The new ETF is actively managed with 35-year industry veteran Hamilton Reiner, Head of US Equity Derivatives at JP Morgan, serving as lead portfolio manager. Reiner is supported by portfolio managers Eric Moreau and Andrew Stern who collectively have 23 years of industry experience.
The fund targets a significant portion of Nasdaq 100 returns with less volatility, in addition to monthly income.
It primarily invests in Nasdaq 100 securities, although other US equities may also be selected. The ETF’s managers focus on building a portfolio with lower volatility compared to the Nasdaq 100.
To boost income, the ETF may invest up to 20% of its assets in equity-linked notes (ELNs). According to the fund’s prospectus, these ELNs are derivative instruments that combine the economic characteristics of the Nasdaq 100 and short call options within a single note.
The premiums from the call options provide regular monthly income; however, the call options also limit the fund’s ability to fully participate in potential increases in the value of the equity portfolio.
The ETF is similar to the JPMorgan Equity Premium Income ETF (JEPI US) which debuted in May 2020. This fund delivers a similar strategy of seeking enhanced income and lower volatility relative to the S&P 500. It houses $9 billion in assets and also comes with an expense ratio of 0.35%.
Hamilton Reiner said: “Investors are looking for yield which is proving particularly challenging given the current economic backdrop. Leveraging our differentiated alpha engine, JEPQ is an active solution for investors looking to drive portfolio allocations while maximizing risk-adjusted expected returns.”
Bryon Lake, Global Head of ETF Solutions at JP Morgan Asset Management, added: “JEPQ was built for investors that are seeking income while also owning companies that provide exposure to Nasdaq’s innovative marketplace. The strategy benefits from the intentionality of an active manager while being delivered through the ETF technology. We’re excited to expand our suite of active ETF capabilities and meet client needs with a tested investment strategy that balances income and equity exposure essential to portfolio construction.”