Investors are pouring into low-volatility and bond alternative exchange-traded funds in the search for yield amid rising rates and an uncertain environment, J.P. Morgan Asset Management’s Byron Lake told CNBC’s “ETF Edge” in an interview earlier this week.
The Dow and Nasdaq saw their biggest single-day drops since 2020 on Thursday, taking back their gains from the Fed meeting rally on Wednesday. It was the S&P 500’s second-worst day of the year.
Those looking for lower volatility than the S&P 500 may consider the JPMorgan Equity Premium Income ETF (JEPI) whose top holdings include Bristol Myers Squibb, Hershey, Coca-Cola and United Health Group. It aims to deliver similar returns to the S&P 500, but with less risk.
Lake said the strategy behind the ETF — a basket of equities and covered calls on those equities — has been around for decades.
“We’re targeting a 6% to 9% distributable yield because of that extra premium that’s coming through on those covered calls,” the firm’s global head of ETF solutions explained.
“But we’ve actually been able to achieve quite a bit higher than that, given the volatility that’s coming through the markets these days,” Lake added.
He also recommends the JPMorgan Ultra-Short Income ETF (JPST) for investors hoping to take advantage of the interest rate increase and get ahead of the additional hikes in the coming months.
With interest rates on the rise, bond prices are falling.
“Investors are using that as a step out of cash within their portfolio, but still achieving some yield,” Lake said.
The JEPI was down nearly 9% year to date while the S&P 500 was down more than 13% year to date as of Friday afternoon. The JPST fell less than a percent.
