Key Points
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The JEPQ ETF provides good yield while de-risking through diversification.
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Meanwhile, the MSTY ETF’s dividends are astounding but this fund is only appropriate for risk takers.
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Will you choose gigantic yield or safer yield? Imagine having two exchange traded funds (ETFs) in front of you right now, both of which are highly attractive to passive income investors. However, they have two completely different risk-reward profiles.
It’s a tough choice that could have a major impact on your profit potential. Today, we’ll reveal the pros and cons of two fascinating ETFs for passive income enthusiasts and hopefully find the one that’s perfect for your portfolio. Ultimately, you might even buy both of these funds in appropriate quantities for a power-packed dividend ETF combo.
JEPQ for Safe but High Yield
Out of the two funds we’re showcasing today, the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) is the one with the lower annual yield. Yet, JEPQ’s yield is still quite respectable.
I’ll get right down to the nitty gritty. The JPMorgan Nasdaq Equity Premium Income ETF has a 12-month rolling dividend yield of 11.36%, which is nothing to sneeze at.
Granted, we should consider the annual management fees, which total 0.35% per year. In other words, for every $100 invested in the JPMorgan Nasdaq Equity Premium Income ETF, $0.35 is automatically deducted from the share price.
That’s reasonable when you’re getting such a large yield, so you probably won’t mind the management fees. On the other hand, you might wonder how the JPMorgan Nasdaq Equity Premium Income ETF achieves an annual yield of around 11%.
First of all, the JEPQ ETF is based on the NASDAQ 100 stock index. It’s a technology-heavy index containing established large-cap names like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), NVIDIA (NASDAQ:NVDA), Amazon (NASDAQ:AMZN), and Meta Platforms (NASDAQ:META).
As the fund’s literature explains, the JPMorgan Nasdaq Equity Premium Income ETF is “designed to provide distributable income through a combination of dividends and options premium.” More specifically, JEPQ enables its distributions through NASDAQ 100 dividends and through a strategy of writing (selling) covered call options.
One benefit of the JPMorgan Nasdaq Equity Premium Income ETF is that it pays out its cash distributions on a monthly basis. That’s in contrast to many other dividend ETFs that only pay distributions once every three months.
Another benefit of the JEPQ ETF is that its holdings are diversified across 100 large-cap stocks. This feature adds a layer of safety to the JPMorgan Nasdaq Equity Premium Income ETF.
MSTY for Explosive Dividends
Overall, JEPQ strikes a nice balance between ambitious yield and de-risking through diversification. But then, an annual yield of 11% might not be enough to slake your thirst for big dividends.
For passive income thrill seekers, I present to you the YieldMax MSTR Option Income Strategy ETF (NYSEARCA:MSTY). This fund has an expected annual yield (known as a “distribution rate”) of 92.9%.
That’s amazing, you must admit. Moreover, like the JEPQ ETF, the YieldMax MSTR Option Income Strategy ETF pays its cash distributions each and every month.
The MSTY ETF’s annual management fees (known as the “expense ratio”) are 0.99% of the share price. That’s notably higher than the the 0.35% annual management fees for the JPMorgan Nasdaq Equity Premium Income ETF.
Still, the giant yield offered by the YieldMax MSTR Option Income Strategy ETF should easily make up for the higher management fees. Before you invest in MSTY, though, you’ll surely want to know how this fund achieves such a high yield.
To sum it up, the YieldMax MSTR Option Income Strategy ETF actively trades U.S. Treasury bonds and options on Microstrategy (NASDAQ:MSTR) stock. Since Microstrategy stock tends to be volatile, it shouldn’t be too surprising that the MSTY ETF can also be volatile.
Here, you won’t get the 100-stock diversification that you would get with JEPQ. Instead, you’ll get very little diversification and will be exposed to a high level of volatility risk with the YieldMax MSTR Option Income Strategy ETF.
JEPQ or MSTY: Choosing a Winner
Sensible investors might immediately conclude that the JPMorgan Nasdaq Equity Premium Income ETF is the winner. After all, the JEPQ ETF balances great yield with comparative safety.
Don’t be too quick to jump to conclusions, though. Investors who are bullish about Microstrategy stock and are willing to take big risks might choose the YieldMax MSTR Option Income Strategy ETF.
Besides, this doesn’t have to be an either/or proposition. It’s entirely possible to buy a moderate number of JEPQ shares to diversify your portfolio but also add a few MSTY shares for an extra income boost.
Just be aware that the huge distributions from the YieldMax MSTR Option Income Strategy ETF come with added volatility risk. If you can tolerate that risk, then the JPMorgan Nasdaq Equity Premium Income ETF and the YieldMax MSTR Option Income Strategy ETF can both be winners for you.
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The post JEPQ vs. MSTY: High Yield or Explosive Dividends—Which ETF Is Better? appeared first on 24/7 Wall St..
