JEPI ETF: Passive Income Darling or Overhyped Risk Trap? What Investors Need to Know

There’s a great television commercial whose main point is that we as a society are too quick to apply the term “rockstar” to people that are not actually famous rock and roll musicians. I think that extends to certain stocks that shall go nameless here, but also to a small number of ETFs.

One of those is JPMorgan Equity Premium Income ETF (JEPI), and while we could certainly argue that Jamie Dimon, the longtime CEO of financial behemoth JP Morgan, is a rare exception to the “rockstar equivalent of his industry” label, this popular ETF does not deserve that accolade.

Don’t get me wrong, it is a solid fund for what it does. But as is the case with many of its covered-call-writing ETF peers, It is what JEPI fails to do, that many investors blindly think it does, which is the concern. To be clear, I’m in the minority here, as these 2 graphics show. A ton of AUM growth, and nary a negative article to be found.

JEPI News Sentiment analysis. Source: FX Empire

JEPI AUM growth. Source: Ycharts.

What’s wrong with this JEPI picture?

Normally, if I were showing you a chart like this one, in which the yield of an ETF (JEPI) relative to T-bills was rising, that might be a good thing. However, in the same way that high-yielding bonds are perceived as riskier when their yield spread to US Treasuries expands, there’s a similar principle at work here.

My current issue with JEPI is that its yield used to be its “hook” that created all of that asset inflow. But it yielded 12% back then, when T-bills yielded very little. Now, the fund yields more than one-third less, and T-bills have been steady.

The punch line? As noted above, JEPI is still a stock portfolio. So renewed and sustained stock market weakness would leave this ETF with a much smaller yield cushion. Lower income level without the stock market surging to supplement that? Both motivations to own JEPI would be at risk. And I think they are. So I’m not attracted to this ETF. No matter how popular it is. “Accident waiting to happen” would be my bottom-line.

Solid ETF? Yes. Rockstar? No.

JEPI is, at its core, an equity ETF, as are many covered call ETFs. That is apparent in looking at its top 10 holdings. That looks like a fairly normal, US equity portfolio. It is not a top-heavy portfolio, and is actively-managed. That allows the managers some flexibility. And, its expense ratio (0.35%) is shareholder-friendly, given the active management and covered call writing features here.

JEPI current top 10 holdings. Source: JP Morgan Asset Management.

It is also likely to distinguish itself from the S&P 500 index, since its current sector exposure has a 15% technology allocation, about half that of the index.

JEPI current top sector holdings. Source: JP Morgan Asset Management.

This picture below is one of two aspects of JEPI that has caused me to consider it OK, but overrated. Note that an ETF can’t get that overrated label unless it is very popular. That’s my point. It is good, not great. And this is one reason why:

JEPI’s swap portfolio holdings. Source: JP Morgan Asset Management.

That’s the presentation from JP Morgan for how it delivers that covered call writing overlay, the piece of the JEPI portfolio that helped it deliver a 7.4% income yield over the past 12 months. But I don’t really know what I own here. I increased the font size on the top part of the disclosure above to convey this concern.

Past performance may indicate future returns?

Here’s JEPI during 2025’s brief mess. It held in OK versus the S&P 500, but it still lost 13%. Hedged does not mean “doesn’t lose very much.”

JEPI total return during 2025 selloff. Source: Ycharts.

2022 was a 9-month slog, and JEPI again beat the market due to the covered call cushion and perhaps some active management success. However, this too was a short-lived decline.

JEPI total return during 2022 selloff. Source: Ycharts.

And, with JEPIX standing in because JEPI did not start until May of 2020, here’s how this strategy fared during the pandemic malaise. Here, the orange line I added is the S&P 500.

JEPIX total return at start of pandemic crash (2020) Source: Ycharts.

Do you see what I see? JEPI failed to protect at all! Again, a quick recovery followed. But here’s the math. JEPI brings in about 0.6% or so a month in cash flow from writing options via those opaque swap contracts. Not long ago that figure was significantly higher, but that’s still a nice dividend yield for this ETF.

However, if something like this occurs again (not a pandemic, a rapid market decline) and does not recover for years, as we experienced in 2000 and 2008, JEPI is bound to disappoint a good portion of that $40 billion in assets. Even if those swap agreements deliver as the fund aims to.

The bottom line on JEPI

Covered calls? Very nice. Active management? I’m good with that (I used to be one myself). Prominent firm behind the ETF? For sure. Market leader with tons of ad dollars to be the “rockstar of covered call ETFs?” That’s good for them, but for shareholders, I’d put on the earplugs, focus on what I actually own here, and not get swayed by the popularity.