JEPQ vs. QQQ - Which is Best For You?
JEPQ and QQQ are two popular investment ETFs that track the Nasdaq 100 Index.
However, JEPQ has a capped upside potential, while QQQ doesn’t. Understanding the difference between these ETFs is crucial before you pick one to invest in.
Introduction to JEPQ and QQQ
JEPQ is an ETF launched in 2022, with operational guidelines tuned for consistent income generation. On the other hand, we have QQQ, a seasoned player launched back in 1999.
While QQQ is a passive long-only investor in the index constituents, JEPQ implements an active covered call strategy applied to the Nasdaq 100 Unit Trust.
JEPQ vs. QQQ - Dividend Yield Comparison
JEPQ - 6-12%
QQQ - 0.55%
One of the biggest differences between these ETFs is that JEPQ pays a much higher dividend yield than QQQ.
The dividend yield of JEPQ ranges from 6-12%, an eye-catching figure for income-focused investors.
Conversely, QQQ offers a modest yield of about 0.55% which, compared to JEPQ, may appeal less to those looking for substantial income from their investments.
JEPQ pays a higher dividend because the fund sells covered calls, which generate income but also cap upside potential.
If you are a risk-averse investor, JEPQ is a great way to invest in the Nasdaq-100 with less volatility and higher income.
JEPQ vs. QQQ - Holdings
JEPQ and QQQ both track the Nasdaq-100 Index, making the holdings nearly identical.
However, due to JEPQ’s active management style, the fund often carries around 80-90 companies, while QQQ holds around 100.
JEPQ has a much higher turnover ratio of over 160% compared to QQQ’s turnover ratio of around 7%. This high turnover ratio indicates that JEPQ's holdings are frequently being traded.
JEPQ vs. QQQ - Expense Ratio Comparison
JEPQ - 0.35%
QQQ - 0.20%
Since JEPQ is actively managed, its expense ratio is much higher than QQQ’s.
With an expense ratio of 0.35%, JEPQ charges substantially more than QQQ’s expense ratio of 0.20%.
If you prefer an active approach with lower volatility and drawdowns, it may be worth investing in JEPQ, even with the higher expense ratio.
It is also worth noting that an expense ratio of 0.35% is still lower than the industry average.
JEPQ vs. QQQ - Performance Comparison
During an extended bull market, a fund like QQQ will outpace JEPQ. Due to JEPQ’s covered call strategy, the fund’s upside return potential is limited.
However, in a heightened volatility market, JEPQ’s approach of a covered call strategy may manifest a superior performance by reducing volatility and providing a buffer for portfolio returns.
Which is Better for Investors: JEPQ or QQQ?
From an investor’s perspective, both funds provide divergent avenues to cater to diverging needs. It falls down to personal preference regarding risk appetite, income requirements, and belief in market conditions.
For example, an investor bullish on tech-sector’s growth may tilt towards QQQ for its uninterrupted exposure.
On the contrary, a conservative investor seeking consistent income may consider JEPQ more fitting.
Therefore, the choice is essentially subjective, resorting to personal investment philosophies and market perception.
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FAQ
Is JEPQ a Good Investment?
Like any investment, the answer depends on individual financial circumstances and the prevailing market conditions. JEPQ utilizes a covered call strategy, aiming to boost investor returns by selling short-term call options. This indicates an income-focused approach, which might appeal to investors interested in consistent cash generation with decreased volatility.
Who is Competition to QQQ?
QQQ is modeled after the Nasdaq 100 Index, primarily focusing on large-cap companies within the technological sector. Despite being one of the top performers in the ETF market, it faces stiff competition from funds like the SPDR S&P 500 ETF (SPY) and Vanguard Growth ETF (VUG), which also track indices with substantial technology exposure.
What Is the Difference Between JEPI and JEPQ?
Both JEPI and JEPQ, managed by JP Morgan, employ a covered call approach with a significant difference in their equity portfolios. While JEPI primarily invests in large-cap American stocks following the S&P 500 Index, JEPQ focuses on the Nasdaq 100 index, a significant presence in the tech sector.
Is JEPQ High Risk?
Risk is relative based on individual risk tolerance and investment horizons. JEPQ, by its very design of using a covered call strategy, is designed to substantially mitigate the level of risk by aiming to provide consistent income and potential downside protection during market downturns. Nonetheless, the fund is exposed to the volatility in the tech-focused Nasdaq Index.
