ETF Comparison: JPMorgan Equity Premium Income ETF (JEPI) Versus Amplify CWP Enhanced Dividend Income ETF (DIVO)

JEPI vs DIVO: Total cost of ownership

JEPI

emerges as the more economical option. With an expense ratio of 0.35%, it is notably less expensive than DIVO's 0.56%. To put it in perspective, a $10,000 investment in JEPI incurs annual fees of just $35, compared to $56 for the same investment in DIVO

DIVO

-0.24%

.

Interestingly, JEPI's expense ratio matches that of some popular dividend index ETFs like the ProShares S&P 500 Dividend Aristocrats ETF

and the SPDR S&P Dividend ETF

SDY

-0.43%

.

When considering trading costs, JEPI continues to lead with a 30-day median average bid-ask spread of 0.024%, significantly lower than DIVO's 0.176%. This makes JEPI not only cheaper to hold over the long term but also more cost-effective to trade.

Overall, JEPI presents a more affordable choice for investors looking at both upfront and ongoing costs. It is one of the cheapest actively managed derivative income ETFs on the market today.

JEPI vs DIVO: Methodology and holdings

Both JEPI and DIVO employ unique active management strategies not tied to a specific index, pairing equity holdings with an income-enhancing covered call strategy.

JEPI

aims to mirror the lower-risk profile of the S&P 500 while seeking to provide enhanced income. It manages a diverse portfolio of approximately 100 stocks, selecting them to achieve a return similar to the S&P 500 but with reduced volatility.

To boost its income, JEPI utilizes a portion of its assets to sell out-of-the-money covered call options on the S&P 500 index through equity-linked notes (ELNs), enhancing the yield which currently stands at 7.22% over the trailing 12 months.

DIVO

, by contrast, opts for a more concentrated approach, selecting 20-30 blue-chip U.S. stocks with strong fundamentals and potential for dividend growth.

Unlike JEPI, DIVO actively sells covered call options directly on its individual holdings rather than on an index, aligning more closely with its tactical management style. This strategy supports a trailing 12-month yield of 4.51%, although it tends to fluctuate.

In terms of portfolio composition, JEPI aligns more closely with the broader market of the S&P 500 but focuses on lower-volatility selections within each sector.

On the other hand, DIVO's sector allocation is more tactical, with management having the flexibility to overweight or underweight sectors based on their strategic views, currently favoring technology and healthcare.

Significantly, JEPI is less top-heavy compared to DIVO, with its top 15 holdings making up 25.87% of the portfolio, whereas DIVO's top 15 constitute a hefty 77.37% of its assets.

This highlights DIVO's more concentrated and high-conviction approach to stock selection and option strategy, in contrast to JEPI's broader, index-like coverage and focus on mirroring the market with less volatility.

JEPI vs DIVO: Risk and return

Over the past three years and one year, DIVO

has significantly outperformed JEPI, even though JEPI has attracted much larger inflows. This performance difference is partly due to their distinct approaches to options strategies.

JEPI

uses ELNs to sell OTM index calls, which can cap some upside potential more uniformly across the portfolio. In contrast, DIVO's ability to write calls on individual stocks gives it more discretion to capitalize on volatility, earnings, and momentum, allowing for less capped upside.

From May 2020 to the present, despite JEPI having a higher distribution yield, DIVO has delivered superior total returns for the reasons mentioned.

However, it's worth noting that JEPI achieved its goal of lower volatility, evidenced by a better Sharpe ratio of 0.92 compared to DIVO's 0.89, indicating better risk-adjusted returns and a lower standard deviation.

Which is better? For beginner income investors, JEPI might be the more appealing choice—it's cheaper, has a broader portfolio, exhibits lower volatility, and employs a more systematic options selling strategy which adds predictability.

For those seeking active management, DIVO's concentrated portfolio and tactical call writing stand out. Both ETFs generate above-average income, but JEPI pulls ahead with higher income at the cost of slightly lower total returns.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.