Welcome to the ultimate income ETF showdown: NUSI vs QYLD vs JEPI. In this blog post, we will delve into the distinct strategies employed by these three income-focused exchange-traded funds. As we explore their differences, you’ll discover how each fund aims to secure impressive yields and generate sustainable income. If you’re searching for ways to boost your passive income, these funds are excellent contenders to consider adding to your investment portfolio. Get ready for an in-depth analysis of $NUSI, $QYLD, and $JEPI, as we uncover the secrets behind their success.
First, let’s look at some basic comparable information for NUSI vs QYLD vs JEPI:
March 2024 Update:
3Y Growth:
- NUSI: 7.93% with out Dividends Reinvested
- QYLD: 15.02% with out Dividends Reinvested
- JEPI: 35.44% with out Dividend Reinvested
Dividend Yield’s have remained nearly the same since we published this post:
- NUSI Dividend Yield 7.13%, down from 7.79%
- QYLD Dividend Yield 11.54%, up from 11.47%
- JEPI Dividend Yield 7.85%, up from 7.55%
I was astounded by NUSI’s performance in 2022, particularly given its downside risk protection with protective puts, it seemed like the perfect year to put it to the test amidst market downturns. Yet, to my surprise, it didn’t quite live up to expectations. Meanwhile, JEPI stood out with impressive resilience, solidifying its position as my top choice among passive income ETFs. With its current yield, I find it hard to justify opting for QYLD at all.
While QYLD may initially appear to offer the most enticing income potential, its growth pales in comparison, having only increased by 4.33% against the S&P 500’s 19.26% return. On the other hand, JEPI boasts a yield similar to NUSI’s but outshines it in growth by over 10%, a significant margin indeed. So, which ETF should you consider for your portfolio? Let’s delve into the prospectuses of each fund to grasp their objectives and strategies before making a conclusive decision.
NUSI Stock – (Nationwide Risk Managed Income ETF)
Nationwide Risk Managed Income ETF (NUSI) offers an innovative income solution designed to target high current income while also providing investors with a safeguard against market downturns and the potential for growth in bullish conditions.
According to NUSI’s prospectus, the fund achieves its objectives by investing in stocks from the NASDAQ-100 Index and employing an options collar strategy, which involves buying call options and selling put options. Income is distributed monthly, derived from dividends earned on its holdings and premiums generated from its options collar. What sets NUSI apart is its use of protective puts, strategically employed to shield investors from downside risk and mitigate overall volatility. This approach positions NUSI as a stable choice, especially during market downturns.
Nationwide emphasizes that NUSI can serve as a substitute for bonds or complement a 60/40 portfolio strategy, underscoring its versatility and potential role in diversified investment portfolios.
Looking for different dividend ETF options? Take a look at my favorite Dividend ETFs for 2024
QYLD Stock – (Global X NASDAQ 100 Covered Call ETF)
QYLD employs a “covered call” or “buy-write” strategy, wherein the fund purchases stocks from the Nasdaq 100 Index and simultaneously sells corresponding call options on the same index.
QYLD’s prospectus indicates that, like NUSI, it invests in the NASDAQ-100 index. However, only 80% of the fund’s assets are allocated to the underlying index, with shareholders being notified 60 days in advance if this rule changes. Each month, the fund managers sell covered call options against the assets held in the portfolio. While QYLD benefits from the premiums received from these covered calls, it lacks the additional downside protection provided by put options, a feature unique to NUSI.
Another noteworthy aspect highlighted in the prospectus is that during rapid equity market rallies, the Underlying Index is expected to underperform the Reference Index. This implies that QYLD’s stock price may not keep pace with the NASDAQ-100 index during rapid rises, potentially resulting in share appreciation loss despite the high yield offered by QYLD.
JEPI Stock – (JPMorgan Equity Premium Income ETF)
JPMorgan Equity Premium Income ETF ($JEPI) offers investors a unique blend of monthly distributable income and exposure to the equity market with reduced volatility. The fund’s defensive equity portfolio is crafted through a meticulous bottom-up fundamental research process, focusing on stock selection based on proprietary risk-adjusted stock rankings. Complementing this approach is a disciplined options overlay strategy, which involves writing out-of-the-money S&P 500 Index call options to generate distributable monthly income.
In terms of performance, $JEPI has demonstrated its appeal with a compelling 12-month rolling dividend yield of 9.64% and a 30-day SEC yield of 12.51%. It stands out in the Derivative Income category, boasting a top quintile yield. Additionally, it remains competitively priced compared to its peers, with fees standing at 0.35%.
JEPI’s prospectus reveals its focus on investing in the assets of the SP500 index, aiming to generate stable income while capturing a significant portion of the SP500’s total return. What sets JEPI apart from its counterparts is its dual objective of income generation and retained capital appreciation. The fund achieves this through the utilization of Equity-Linked Notes (ELNs), derivative instruments designed to combine the economic characteristics of the S&P 500 Index and written call options within a single note. However, it’s worth noting that the call options embedded in the ELNs limit the fund’s ability to fully capitalize on potential increases in the value of its equity portfolio, thus dampening its performance compared to the SP500. In essence, equity-linked notes resemble bonds with the additional feature of covered calls, offering investors a unique blend of income and capital growth potential.
Overview
When it comes NUSI vs QYLD vs JEPI, each fund is unique and plays a specific role for different investors. Below is a general overview of each fund.
- NUSI is a good option if you are looking for a good source of passive income (7%~) with the comfort of some potential downside protection. It’s collared option approach looks to provide income in both a rising and falling market.
- QYLD is a pure income play (11%~) with very little capital appreciation. If you’re looking for maximum income then QYLD is a good addition to your portfolio.
- JEPI is the balanced approach that also follows a larger index than the other two, the SP500. This is a great income play (7%~) if you’re also looking for solid capital appreciation. NOTE: JEPI also performed the best in 2022 out of the three and still returned an impressive yield.
It’s also important to note that JEPI and NUSI are relatively newer funds when compared to QYLD. Past performance doesn’t equal future performance. We will need to see how these funds evolve and perform across multiple market conditions.
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Recommendations for New Income Investors:
1. NUSI:
- For Retirement Age Investors: Consider researching NUSI for its income-generating potential coupled with downside risk mitigation. With its collared option strategy, NUSI aims to provide a steady income stream while safeguarding against market downturns. Moreover, its average growth can help your assets appreciate during retirement, potentially keeping pace with inflation.
2. JEPI:
- For Younger Investors Seeking Income Potential: JEPI could be an ideal choice due to its emphasis on capital appreciation alongside solid income potential. As a younger investor, capturing compound interest early in your investments is crucial for building a robust retirement portfolio. JEPI’s balanced approach aligns with this goal, offering the potential for both income and growth.
3. QYLD:
- Least Preferred Option: QYLD ranks lowest among the three ETFs due to its limited long-term capital appreciation potential. Over time, portfolios relying solely on QYLD’s income may experience a gradual decline in value, as evidenced by its performance since 2013 (8% decline). While QYLD can serve as an income generator, it’s essential to consider reinvesting income or exploring alternative options for long-term wealth accumulation.
By considering these recommendations and conducting thorough research on each ETF, new income investors can make informed decisions aligned with their financial goals and risk tolerance.