NUSI vs QYLD vs JEPI: The Income ETF Showdown
Updated: May 20
Today we’re going to a look at three different income ETFs and how they vary. Each has a unique strategy that we’ll examine. This class of funds strives to obtain high yields to produce sustainable income. These are great additions to portfolios for those looking to generate passive income.
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Table of Contents
NUSI Stock - (Nationwide Risk Managed Income ETF)
QYLD Stock - (Global X NASDAQ 100 Covered Call ETF)
JEPI Stock - (JPMorgan Equity Premium Income ETF)
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Here my TOP 10 ETFs for a Diversified Dividend Income Portfolio!
First, let’s look at some basic comparable information:
May 20th 2023 Update:
Year to Date Growth:
NUSI: 11.03% with out Dividends Reinvested
QYLD: 10.78%% with out Dividends Reinvested
JEPI: 0.75% with out Dividend Reinvested
Dividend Yield's are higher as well:
NUSI Dividend Yield 8.17%, up from 7.79%
QYLD Dividend Yield 11.65%, up from 11.47%
JEPI Dividend Yield 11.27%, up from 7.55%
Surprised by the performance of NUSI in 2022 since it has down side risk protection with protective puts. This was a good year to test it's volatility in a down market and, for me, it did not pass the test. JEPI faired extremely well given the year's returns. JEPI remains my top pick as the king of passive income ETFs. Given it's current yield I would skip QYLD altogether.
At a glance we can see that QYLD has the best income potential but also the smallest growth. It only grew 4.33% which is extremely low considering the SP500 has returned 19.26%. JEPI has a yield that is close to NUSI but beats its' growth by just over 10%, which is a large margin. Which ETF is better for your portfolio? Lets dive into each fund's prospectus to understand their goals and how they plan to meet them before we make a determination.
NUSI Stock - (Nationwide Risk Managed Income ETF)
Description: An income solution that targets high current income and seeks to provide investors with a measure of downside protection in falling markets and potential for upside participation in rising markets.
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NUSI's prospectus states that it intends to meet it's objectives by investing in the NASDAQ-100 Index stocks and using an options collar (buying call options and selling put options). It will distribute income monthly sourced from dividends received on its holdings and from the premiums left over from its options collar. What makes NUSI unique are the puts they purchase. They are used to protect investors from downside risk and reduce the funds overall volatility. Using this strategy should give NUSI the highest stability of the three funds when the market is down. Nationwide also states that NUSI should be used in place of Bonds or to support a 60/40 portfolio.
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QYLD Stock - (Global X NASDAQ 100 Covered Call ETF)
Description: The Global X Nasdaq 100 Covered Call ETF (QYLD) follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index.
QYLD's prospectus states that they invest in the NASDAQ-100 index just like NUSI. Only 80% of the funds assets will be invested in the underlying index. The shareholders must be given 60 days notice if the 80% rule is going to change. Each month the fund managers write (sell) covered calls options against the assets that the portfolio holds. It also states that it has built in downside risk due to receiving the covered call premiums. NUSI has the additional downside protections of the the put options. Another key factor that is stated is "when the equity market is rallying rapidly, the Underlying Index is expected to underperform the Reference Index. What that means to me is that QYLD's stock price will not keep pace with the NASDAQ-100 index if it rises rapidly. This equates to share appreciation loss at the cost of the high yield offered by QYLD.
JEPI Stock - (JPMorgan Equity Premium Income ETF)
Description: JPMorgan Equity Premium Income ETF ($JEPI) seeks to deliver monthly distributable income and equity market exposure with less volatility.
PORTFOLIO
Defensive equity portfolio employs a time-tested, 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 S&P 500 Index call options to generate distributable monthly income.
RESULTS
Provided an attractive 12-month rolling dividend yield of 9.64% and 30-day SEC yield of 12.51%.
Top quintile yield in the Derivative Income category.1
Competitively priced vs. peers at 0.35%.
JEPI's prospectus states that it invests in the assets of the SP500 index. It seeks to produce stable income while also capturing a majority of the SP500's total return. JEPI is the only fund of the three that seeks both income and retained capital appreciation. The way the fund produces its income is through Equity-Linked Notes (ELNs). ELNs are derivative instruments that are specially designed to combine the economic characteristics of the S&P 500 Index and written call options in a single note form. The call options inside the ELNs reduce the Fund’s ability to fully profit from potential increases in the value of its equity portfolio. This means that the ELNs will drag down the funds performance when compared to the SP500. Equity linked notes are similar to bonds with the addition of a covered calls.
Overview
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 retirement age investors, I recommend researching NUSI due to it's income and downside risk mitigation. Additionally, its average growth will allow your assets to appreciate in retirement to hopefully keep pace with inflation.
For younger investors seeking income potential, I recommend JEPI due to it's capital appreciation goal and solid income potential. Capturing compound interest early in your investments is key to a solid retirement portfolio.
QYLD is my least favorite of the three ETFs due to it having very little, if any, long-term capital appreciation. Your portfolio will slowly lose value (8% since 2013) if you are using the income that QYLD provides and not re-investing it. I recommend researching QYLD further if you are ONLY concerned with generating income.
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