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Meet an ETF That’s Heavily Invested in Nvidia and — Believe It or Not — Offers an Ultra-High Yield of 8%
Nvidia (NASDAQ: NVDA) is a dividend stock but not one that will be attractive to many income investors. The chipmaker’s forward dividend yield is a puny 0.029%.
Is there a way to own shares of Nvidia and receive exceptional income? Actually, yes. Meet an exchange-traded fund (ETF) that is heavily invested in Nvidia and — believe it or not — offers an ultra-high yield of 8%.
I won’t keep you in suspense. The ETF I’m referring to is the JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI). JPMorgan Chase launched the fund in May 2020 to give investors monthly distributions, exposure to equity markets, and relatively low volatility.
This ETF is indeed heavily invested in Nvidia. The stock is currently its second-largest holding but is neck-and-neck with Trane Technologies for the top spot.
The JPMorgan Equity Premium Income ETF owns a total of 133 stocks. Its other top holdings include Progressive, Southern Company, Meta Platforms, Mastercard, and Amazon. Nearly 15% of the portfolio is invested in information technology stocks. The fund also owns stocks representing 11+ other sectors.
Unlike many ETFs, this one doesn’t seek to track the performance of an index. Its portfolio is built based on what JPMorgan Chase calls a “time-tested, bottom-up fundamental research process with stock selection based on our proprietary risk-adjusted stock rankings.”
This stock selection process has worked pretty well. Since its inception, the JPMorgan Equity Premium Income ETF has delivered an average annual total return of close to 13.4%.
You might be wondering how the ETF can pay such a juicy yield. After all, most of the top holdings mentioned don’t offer attractive dividend yields. Amazon doesn’t pay a dividend at all. The lone exception is Southern Company, but its forward dividend yield of 3.06% is well below the JPMorgan Equity Premium Income ETF’s 30-day Securities and Exchange Commission (SEC) yield of 8%.
There’s a simple answer: derivatives. The ETF writes out-of-the-money call options on the S&P 500 to generate income. These options give the buyer the right (but not the obligation) to buy the S&P 500 at a price higher than the current price. This approach allows the JPMorgan Equity Premium Income ETF’s yield to handily beat what you can get with S&P 500 ETFs, U.S. Treasury bonds, or most global real estate investment trusts (REITs).
Morningstar awarded the JPMorgan Equity Premium Income ETF five stars for its derivative income category of funds. That’s the highest rating possible.
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