In the last few weeks, JPMorgan Equity premium income ETF (JEPI), has seen its stock price fall as American stocks have plummeted. JEPI is down about 2% since its peak this year. The total return of the JEPI index rose this year by 2.30 percent, while that of S&P 500 fell by 1.73 percent.
What is JEPI ETF?
JPMorgan Equity premium Income ETF, a covered call with assets of about 40 billion dollars is popular.
The fund aims to produce returns through investments in 130 American firms in the S&P 500 Index, which includes popular blue-chip companies, such as Abbvie. Progressive, Visa. NVIDIA. Meta Platforms. Amazon. Analog Devices.
JEPI uses the covered-call concept after investing in these firms to produce returns. This is done by selling or writing the S&P 500 call options, and then receiving premiums that it pays to its investors in monthly dividends.
JEPI’s higher dividend payments to investors are a big reason why it is so popular. The S&P 500 pays a yield of 2%, while JEPI’s is 7.3%.
In periods of market turmoil, the fund can be seen as an alternative to S&P 500 ETFs such as the Vanguard S&P 500 ETF (VOO) or the SPDR S&P 500 ETF (SPY). This is because it gets a premium when writing call options for the S&P 500.
JPMorgan Equity premium Income faces risks
The JEPI ETF faces several risks which could affect its performance in 2018. There are fears that Donald Trump’s trade war could affect earnings for corporations this year. In the automotive industry, companies such as GM and Ford could see higher costs and lower demand.
Other industries may see increased costs. Trane Technology is a manufacturer of HVAC systems and related products in China and Taiwan.
These tariffs will have a minimal impact on the majority of the companies within the portfolio. This includes companies such as Salesforce, American Express ServiceNow and ExxonMobil.
JEPI shares also face another risk, which is that earnings from corporations may be slowing down over the next couple of quarters. The slowdown is likely to be due to the performance of the American economic system, which could go into a recession.
JEPI has also always trailed in total returns, even though it pays a greater dividend than S&P 500. The JEPI ETF has had a total return in the past three years of 30% compared with the VOO ETF’s 43%.
Chart of JEPI vs VOO ETF by SeekingAlpha
JEPI ETF has a risk of technical failure
TradingView JEPI Stock
JPMorgan Equity premium Income is also subject to a technical risk, which could push the price down in coming months. On the daily chart, it is clear that the JEPI ETF has formed a double top pattern. The neckline of this pattern is $56. Double-tops are a common bearish chart pattern which often lead to further decline.
Stocks have fallen below their 50-day average. This is a clear sign that the bears currently control this market. The combination of the tariffs with the double-top pattern indicates further declines in the months to come. The next price level will then be $56, which is a drop of 3.65% from the current level.
The S&P 500 is outperforming the JEPI ETF, but a dangerous pattern may change as new updates are released.
