This unique ETF could be attractive to many income investors.
Nvidia (NVDA -0.72%) Although it is a dividend stock, it is not an attractive stock for many income investors. The chipmaker’s future dividend yield is just 0.029%.
Is there a way to earn extra income by owning Nvidia stock? Yes, it is. Here’s an exchange-traded fund (ETF) that’s heavily invested in Nvidia and, believe it or not, offers a super-high yield of 8%.
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Nvidia etc.
I won’t make you anxious. The ETF I’m referring to is the JPMorgan Equity Premium Income ETF. (Jepi 0.22%). JPMorgan Chase launched the fund in May 2020 with the goal of offering investors monthly distributions, stock market exposure and relatively low volatility.
This ETF is certainly heavily invested in Nvidia. The company is currently the second-largest holding, but is closely competing with Trane Technologies for the top spot.
JPMorgan Equity Premium Income ETF holds a total of 133 stocks. Other major holdings include Progressive, Southern Company, Meta Platforms, Mastercard, and Amazon. Nearly 15% of the portfolio is invested in IT stocks. The fund also owns stocks representing more than 11 other sectors.
Unlike many ETFs, this ETF is not intended to track the performance of an index. The portfolio is built on what JPMorgan Chase calls “a proven bottom-up fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings.”
This stock selection process worked very well. Since its inception, the JPMorgan Equity Premium Income ETF has delivered an average annual total return of nearly 13.4%.
About that ultra-high yield
You may be wondering how ETFs can achieve such high yields. After all, most of the top stocks mentioned do not offer attractive dividend yields. Amazon doesn’t pay any dividends. The one exception is Southern Company, whose forward dividend yield of 3.06% is well below the JPMorgan Equity Premium Income ETF’s 30-day SEC yield of 8%.
The answer is simple. It’s a derivative. The ETF writes out-of-the-money call options on the S&P 500 and generates income. These options give the buyer the right (but not the obligation) to purchase the S&P 500 at a higher price than the current price. This approach allows the JPMorgan Equity Premium Income ETF’s yields to easily exceed those earned by S&P 500 ETFs, U.S. Treasuries, or most global real estate investment trusts (REITs).
Morningstar awarded JPMorgan Equity Premium Income ETF five stars in the fund’s Derivatives Income category. That’s the highest possible rating.
To be sure, the ETF’s expense ratio of 0.35% does not reflect unusually low costs. However, it’s important to note that the 8% 30-day SEC yield will ultimately cost you money.
These costs include payments to the ETF’s two highly qualified portfolio managers. Mr. Hamilton Reiner has worked in the financial industry for 37 years, including 15 years at JPMorgan Chase. Raffaele Zingone has worked in the industry for 33 years, all with JPMorgan Chase. Both have managed the JPMorgan Equity Premium Income ETF since its inception.
Unavoidable caveats
Now, let me explain the inevitable caveats that are necessary when discussing this ETF. Most importantly, the Fund’s future performance may not be as good as it has been in the past. While the stock market has soared over the past four years, this period has been relatively short-lived and does not necessarily represent realistic long-term returns.
Similarly, the impressive yield currently available on the JPMorgan Equity Premium Income ETF may not necessarily be that high. Since the ETF’s launch, there have been times when its yield has fallen significantly.
Also, if you want to own Nvidia stock through an ETF, there’s no guarantee that this JPMorgan fund will always be invested in the chipmaker. The ETF’s turnover rate (the rate at which shares held in the fund are sold and exchanged for new shares) for the 12 months ending June 30, 2024 was 174%.
Still, the JPMorgan Equity Premium Income ETF could be attractive to many income investors. If you want to own a position in Nvidia and enjoy a very high yield, this could be your best option.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Motley Fool’s Ascent. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Keith Speights has positions at Amazon, Mastercard, and Meta Platforms. The Motley Fool has positions in and recommends Amazon, JPMorgan Chase, Mastercard, Meta Platforms, Nvidia, and Progressive. The Motley Fool recommends long January 2025 $370 calls on Mastercard and short January 2025 $380 call options on Mastercard. The Motley Fool has a disclosure policy.
