In our previous post, we explored JEPI ETF (JPMorgan Equity Premium Income ETF), a unique exchange-traded fund designed to provide investors with attractive income and capital appreciation. We are going to introduce another ETF, DIVO (Amplify CWP Enhanced Dividend Income ETF), which has a similar covered-call strategy. We will compare these two ETFs and discuss which one may be right for you.
What?
Covered call ETFs, like DIVO and JEPI, are designed to provide high income through a combination of dividend payments and option premiums. Both ETFs write covered calls on their holdings, which generates additional income. DIVO (Amplify CWP Enhanced Dividend Income ETF) and JEPI (JPMorgan Equity Premium Income ETF) are popular choices for income-seeking investors, especially those looking to hedge against market volatility.
DIVO focuses on high-quality, dividend-paying stocks, combined with an active covered call strategy. It aims to provide monthly income and long-term capital appreciation. JEPI, on the other hand, invests in large-cap U.S. stocks and uses equity-linked notes to enhance income through covered calls, aiming to deliver a high yield with less volatility than the broader market.
So What?
The key differences between DIVO and JEPI lie in their income strategies, yield, and volatility:
Income Strategies:
DIVO selects stocks with strong dividend histories and augments this with covered calls. This approach provides a balance between income and growth potential.
JEPI uses a more aggressive approach by incorporating equity-linked notes alongside covered calls, which can lead to higher yields but may involve additional risks.
Yield:
JEPI has a higher yield, often around 7-8%, making it attractive for those seeking maximum income.
DIVO typically offers a yield of around 4-5%, which is still robust but lower compared to JEPI.
Volatility:
JEPI aims for lower volatility through its unique structure, which can appeal to more conservative investors.
DIVO provides a more traditional covered call strategy, which may result in higher volatility but offers the potential for capital appreciation.
Additional Information:
Inception:
JEPI: 5/20/2020
DIVO: 12/13/2016
Total Assets:
JEPI: $33.6 B
DIVO: $3.2 B
Expense Ratio:
JEPI: 0.35%
DIVO: 0.56%
Performance:
The chart below shows the performance comparison between JEPI and DIVO since JEPI's inception. Both ETFs show similar patterns but DIVO performs better than JEPI.
The table below shows the yields of the two ETFs since JEPI's inception. As we discussed above, JEPI has consistently better yields.
Now What?
For everyday investors, particularly those seeking steady income, both DIVO and JEPI present compelling options. However, the choice between them should be guided by individual risk tolerance, income needs, and investment horizon:
Income-Focused Investors: If maximizing income is the primary goal, JEPI might be the better choice due to its higher yield. Its strategy is designed to deliver substantial monthly income, albeit with some complexity and additional risk due to its use of equity-linked notes.
Balanced Investors: For those looking for a balance between income and growth with slightly less complexity, DIVO offers a solid option. Its focus on high-quality dividend stocks combined with covered calls provides a reliable income stream while allowing for potential capital appreciation.
Concluding Remarks
Choosing between DIVO and JEPI comes down to your specific investment goals and risk appetite. Both ETFs provide excellent avenues for generating income through covered call strategies but differ in their approaches and resultant yields. By understanding these nuances, investors can better align their portfolios with their financial objectives. As always, consult with a financial advisor/professional to ensure these investments align with your personal financial situation and goals.
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