While the excitement around artificial intelligence has driven the market higher in recent months, cash has continued to pour into the more conservative JPMorgan Equity Premium Income ETF (JEPI) , and now competition is heating up. JEPI has become the biggest active ETF in the U.S., touting more than $26 billion in total assets and pulling in more than $17 billion of that over the past year. The fund’s strategy of active stock selection, combined with equity linked notes that function similar to covered calls on the broader market, helped JEPI sharply outperform the S & P 500 in 2022. Its sister fund the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) has already surpassed the $3 billion mark in just one year on the market, and that fund has performed better than JEPI this year as markets have rallied. The success of the funds has gotten too big for rivals to ignore. Goldman Sachs filed last week to launch two similar funds: the Goldman Sachs U.S. Equity Premium Income ETF and the U.S. Tech Index Equity Premium Income ETF. Some other funds that use some form of a covered call strategy similar to JPMorgan’s approach with equity linked notes are already on the market. “They say imitation is the greatest form of flattery. I don’t want to be flattered. But what I would say is that given the flows that we’ve seen it’s only natural that they’re all going to come up with their own versions,” Hamilton Reiner, the portfolio manager for JEPI and JEPQ, said at a media event on Monday. Areas of competition The Goldman funds will also be actively managed and employ a covered call strategy, which effectively trades potential upside during market rallies for upfront income. The preliminary filings do not include a launch date or information about tickers and fees. But lower fees for investors is one way that asset managers have traditionally competed in the ETF space. The JPMorgan funds both have an expense ratio of 0.35%. “I think in many places this business is based around trust. … When it comes to trust, price and cost can’t buy it,” Reiner said. The JPMorgan ETFs are transparent, with the firm publishing its holdings on a daily basis. That means that a rival firm could in theory copy the fund closely, at least with respect to its equity holdings. However, even a fund that did exactly that would likely not be an option for some financial advisers until it had an established track record, giving the JPMorgan funds a big head start. “You can’t put a price on a three year track record. JEPI has that,” said Bryon Lake, the global head of ETF solutions at J.P. Morgan Asset Management. The firm’s U.S. ETFs have roughly $110 billion in assets under management. The competition is coming even as the rally for growth stocks has dulled some of the allure for the JPMorgan funds. The SPDR S & P 500 ETF Trust (SPY) has now caught up to JEPI on a total return basis over the past 12 months, and JEPQ is underperforming the Invesco QQQ Trust this year. Because of the covered-calls in the funds, they should be expected to underperform during sharp rallies. Reiner said he knows the JPMorgan needs to continually hunt for ways to improve the current lineup of funds and look for new products for JPMorgan’s ETF business to keep having success and stave off competitors. “Innovation’s fun. That’s the fun part of the job, being creative and saying what else can we do well that can also fit in the ETF wrapper,” Reiner said.
