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While the stock market has been hovering around a record-high level, there are valid reasons to approach the current situation with caution. The excitement for AI, chances of global growth slowdown and still-present inflationary pressure indicate potential bubbles and occasional corrections.
Against this backdrop, high-yielding ETFs may come to investors’ rescue. This is especially true given the fact that even if the stock or the fund falls, higher current income will go a long way in protecting investors’ total returns.
After all, high-yielding ETFs provide investors with avenues to make up for capital losses, if that happens at all. Investors should note that JPMorgan Equity Premium Income ETF (JEPI - Free Report) is a hot ETF investment currently, as it has attracted about $1.975 billion in assets so far this year. The fund yields 7.26% currently.
There are some other investing options as well that provide a high level of current income. GraniteShares HIPS U.S. High Income ETF (HIPS - Free Report) is one of them. The fund HIPS yields 10.02% annually and has amassed about $11.88 million in assets in the year-to-date frame.
Let’s delve a little deeper and find out how these two ETFs are different from each other and what the positives and negatives are associated with them.
How JEPI Works
It is a defensive equity portfolio that deploys a bottom-up fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings. Disciplined options overlay implements written out-of-the-money (OTM) S&P 500 Index call options that seek to generate distributable monthly income.
Trading OTM call options are beneficial when the expectation of upward movement in the underlying asset's price is strong. In a rising market, these options have the potential to become profitable as the underlying asset's price approaches and surpasses the strike price. And this incident has been happening for the S&P 500 this year.
Because OTM call options require a lower initial investment compared to at-the-money or in-the-money options, they are a useful tool for traders with limited capital who are optimistic about potential market upswings.
How HIPS Works
HIPS provides diversified exposure to four alternative income categories — MLPs, REITs, BDCs and closed-end funds. The fund is specifically heavy on MLPs (26.98%), followed by BDCs (24.72%), closed-ended funds (24.62%) and REITs (23.20%). HIPS has maintained a 10.75 cent distribution per share each month since its inception in 2015. This is a great plus for the fund.
Which Fund is Pricier?
JEPI charges 35 bps in fees, while the expense ratio of HIPS is 1.99%. Hence, one can see that HIPS is much pricier than JEPI, and this high expense ratio eats up the 10% yield of the former to some extent.
Inside Performance of Duo
The fund HIPS has returned a total of 59.07% over the period from May 29, 2020, to Apr 30, 2024, compared with JEPI’s 54.01%. Notably, during this period, iShares iBoxx $ High Yield Corporate Bond ETF (HYG - Free Report) has added 12.9% while iShares Core U.S. Aggregate Bond ETF (AGG - Free Report) and iShares 20+ Year Treasury Bond ETF (TLT - Free Report) have lost 11.1% and 40.9%, respectively.
What Lies Ahead?
With the latest CPI inflation print coming weaker, bets over a sooner-than-expected Fed rate cut charged up. If this happens, rate-sensitive investing areas that HIPS binges on should see a rally, resulting in an upturn in the fund itself.
Meanwhile, JEPI also should stay strong as the bullishness around the S&P 500 Index is likely to stay. Also, the fund offers a defensive stance so that it can protect the portfolio against any downside risk.
Having said all, we would like to note that JEPI (32.46X) is way pricier than HIPS (17.97X). Hence, if there is a Fed rate cut or slump in interest rates, chances of a quicker rally are probably present in HIPS. And if inflation remains sticky and the Fed stays put for longer, JEPI will likely outperform HIPS by a moderate margin. HIPS is up 3.4% this year, JEPI is up 4.1%, while the S&P 500 has jumped 11.8%.
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High-Yield ETFs Face Off: JEPI Versus HIPS
While the stock market has been hovering around a record-high level, there are valid reasons to approach the current situation with caution. The excitement for AI, chances of global growth slowdown and still-present inflationary pressure indicate potential bubbles and occasional corrections.
Against this backdrop, high-yielding ETFs may come to investors’ rescue. This is especially true given the fact that even if the stock or the fund falls, higher current income will go a long way in protecting investors’ total returns.
After all, high-yielding ETFs provide investors with avenues to make up for capital losses, if that happens at all. Investors should note that JPMorgan Equity Premium Income ETF (JEPI - Free Report) is a hot ETF investment currently, as it has attracted about $1.975 billion in assets so far this year. The fund yields 7.26% currently.
There are some other investing options as well that provide a high level of current income. GraniteShares HIPS U.S. High Income ETF (HIPS - Free Report) is one of them. The fund HIPS yields 10.02% annually and has amassed about $11.88 million in assets in the year-to-date frame.
Let’s delve a little deeper and find out how these two ETFs are different from each other and what the positives and negatives are associated with them.
How JEPI Works
It is a defensive equity portfolio that deploys a bottom-up fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings. Disciplined options overlay implements written out-of-the-money (OTM) S&P 500 Index call options that seek to generate distributable monthly income.
Trading OTM call options are beneficial when the expectation of upward movement in the underlying asset's price is strong. In a rising market, these options have the potential to become profitable as the underlying asset's price approaches and surpasses the strike price. And this incident has been happening for the S&P 500 this year.
Because OTM call options require a lower initial investment compared to at-the-money or in-the-money options, they are a useful tool for traders with limited capital who are optimistic about potential market upswings.
How HIPS Works
HIPS provides diversified exposure to four alternative income categories — MLPs, REITs, BDCs and closed-end funds. The fund is specifically heavy on MLPs (26.98%), followed by BDCs (24.72%), closed-ended funds (24.62%) and REITs (23.20%). HIPS has maintained a 10.75 cent distribution per share each month since its inception in 2015. This is a great plus for the fund.
Which Fund is Pricier?
JEPI charges 35 bps in fees, while the expense ratio of HIPS is 1.99%. Hence, one can see that HIPS is much pricier than JEPI, and this high expense ratio eats up the 10% yield of the former to some extent.
Inside Performance of Duo
The fund HIPS has returned a total of 59.07% over the period from May 29, 2020, to Apr 30, 2024, compared with JEPI’s 54.01%. Notably, during this period, iShares iBoxx $ High Yield Corporate Bond ETF (HYG - Free Report) has added 12.9% while iShares Core U.S. Aggregate Bond ETF (AGG - Free Report) and iShares 20+ Year Treasury Bond ETF (TLT - Free Report) have lost 11.1% and 40.9%, respectively.
What Lies Ahead?
With the latest CPI inflation print coming weaker, bets over a sooner-than-expected Fed rate cut charged up. If this happens, rate-sensitive investing areas that HIPS binges on should see a rally, resulting in an upturn in the fund itself.
Meanwhile, JEPI also should stay strong as the bullishness around the S&P 500 Index is likely to stay. Also, the fund offers a defensive stance so that it can protect the portfolio against any downside risk.
Having said all, we would like to note that JEPI (32.46X) is way pricier than HIPS (17.97X). Hence, if there is a Fed rate cut or slump in interest rates, chances of a quicker rally are probably present in HIPS. And if inflation remains sticky and the Fed stays put for longer, JEPI will likely outperform HIPS by a moderate margin. HIPS is up 3.4% this year, JEPI is up 4.1%, while the S&P 500 has jumped 11.8%.