JEPI vs. SCHD: A Comprehensive Comparison
Two of the most popular dividend ETFs on the market today are the JPMorgan Equity Premium Income ETF (JEPI) and Charles Schwab U.S. Dividend Equity ETF (SCHD).
JEPI vs. SCHD Overview
JEPI and SCHD are ETFs widely popular amongst long-term investors. Managed actively by JPMorgan Chase, JEPI entered the financial market arena on May 20, 2020.
The fund primarily targets monthly income-seeking investors, focusing on low-volatility stocks complemented by a covered-call strategy.
On the contrary, Charles Schwab introduced SCHD on October 20, 2011, as a passive fund aimed at replicating the performance of the Dow Jones U.S. Dividend 100 Index. The ETF sets its sights on durable companies with a lengthy record of paying dividends, making it ideal for investors with a long-term growth focus.
Expense Ratio Comparison
Now, let’s focus on the expense ratios - an essential aspect that could affect your overall return on investment.
Being an actively managed fund, JEPI comes with an expense ratio of 0.35%. This implies that for every $10,000 you invest, you would end up paying a fee of $35 annually.
On the flip side, SCHD, as a passive fund, carries a lower expense ratio of just 0.06%. This means your yearly fee for an investment of $10,000 would be a mere $6.
Dividend Yield Analysis
Equally crucial to an ETF’s selection are the dividends - the investor’s share of profits.
JEPI, with its covered call strategy, delivers a higher dividend yield. JEPI’s dividend yield will range from 6-12%, depending on the options market and volatility of the market.
An important note about JEPI is that the dividends will not be considered qualified, meaning you must pay regular income tax on them.
In comparison, SCHD features a lower yield but with better stock returns since it is not capped with covered calls. It currently provides a dividend yield of around 3.81%.
Overall, JEPI pays a higher dividend yield, but the share price doesn’t appreciate as much as SCHD.
Holdings Comparison
JEPI, true to its active management style, consists of 135 different positions, with a turnover rate of 195%. This suggests frequent buying and selling of holdings, a characteristic of active management.
In contrast, SCHD hosts 104 positions in its portfolio. Its holdings are adjusted only during quarterly rebalancing, adhering to its passive management approach.
Performance Comparison Analysis
Ever since JEPI’s inception, SCHD has outperformed it by a small margin. One of the main factors is the difference between qualified and ordinary dividends. JEPI pays ordinary dividends, meaning your taxes will be higher compared to SCHD dividends.
JEPI adopts a strategy incorporating options writing, which, although generates attractive income, might cap the fund’s upside. Thus, in a bull market, JEPI may lag in performance.
On the other hand, SCHD exhibits a more orthodox ETF behavior with the potential for both capital appreciation and dividend growth. However, the fund may underperform in a market heavily inclined towards a specific sector like technology.
Which is Better for You: JEPI or SCHD?
Now comes the quintessential question: Which ETF is better?
Understandably, there is no clear-cut answer, as the selection largely depends on your investment goals. If you seek regular and potentially high income, JEPI is the way to go. But remember, the opportunity for capital growth might be limited.
On the contrary, if your focus is long-term growth with a decent dividend yield, SCHD emerges as the winner. Yet, due to its diversified nature, it might underperform during one-sided rallies. Therefore, explore your investment needs and risk tolerance before taking the plunge.
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FAQ
Is SCHD or JEPI better?
The answer to this question largely depends on your investment goals and risk tolerance. On one hand, SCHD targets long-term growth, focusing on companies with a stable dividend history. On the other hand, JEPI aims to provide consistent income even in volatile markets. If you prefer passive investment with solid dividend yield and growth, SCHD might be best for you. But if you’re focused on income generation with possibilities of capital appreciation, JEPI could be a more suitable choice.
Is JEPI a good retirement investment?
As an income-focused ETF, JEPI can make a solid supplement to a retirement portfolio. Its strategy of selling covered calls may offer additional income, which can be quite appealing to retirees. However, keep in mind that its income generation strategy can also cap the potential for price appreciation.
Is JEPI a good dividend investment?
Absolutely! JEPI’s active management approach and strategy of selling covered calls can drive high dividend yield. However, this might also limit capital appreciation, which, in turn, could restrict long-term total return.
