ETF Wars: Attack of the JEPI Clones

Unpacking the new JEPI competitor

I'm calling BALI a JEPI-esque clone because it has many striking similarities to JEPI, namely:

1. BALI is actively managed, selecting stocks based on a "systematic" strategy. JEPI is also actively managed, selecting stocks according to JPMorgan's "proprietary" strategy.
2. BALI charges a 0.35% expense ratio, the same as JEPI.
3. BALI looks to provide exposure to large-cap U.S. stocks selected for lower volatility, similar to the objectives JEPI uses.
4. BALI also looks to produce higher than average monthly income via a covered call overlay like JEPI does.
5. However, the fund isn’t an exact imitator – BlackRock has implemented some notable differences, which include:
6. BALI's current portfolio of 98 holdings is much more top-heavy, whereas JEPI's larger portfolio of 135 holdings is more evenly weighted.
7. The sector weightings are different too. BALI is heavily concentrated in the technology sector at 34.88% of its exposure, whereas JEPI's exposure is much more evenly weighted between consumer staples, financials, healthcare, industrials, and technology. 
8. JEPI uses equity-linked notes (ELNS) to gain exposure to the risks/returns of a covered call strategy on the S&P 500 index, whereas BALI directly sells S&P 500 index call options and buys S&P 500 index futures.

How this changes the derivative income landscape

JEPI's dominant stature in this ETF niche is undeniable, with an asset chest swelling to approximately $28.96 billion as of October 10th, 2023. 

Competitors, irrespective of the clout they wield (BlackRock being a case in point), have a steep climb ahead to match JEPI's brand power. This recognition has burgeoned so much that dedicated online communities, like the r/JEPI subreddit, discuss it ardently.

A quick rewind to recent history provides context. The derivative income space has witnessed a surge, probably fueled by the 2022 bear market wherein these strategies emerged triumphant. 

In an environment characterized by rising stock/bond correlations, investors have cast their nets wider, hunting for diversification avenues. Covered call strategies fit this bill, pairing diversification with the lure of handsome yields.

This landscape's latest entrants are not just strategizing on returns but also taking a direct shot at a common pain point—fees. The criticism of high fees on actively managed ETFs is well-documented. However, both JEPI and BALI have countered this by pegging their expense ratio at 0.35%.

Notably, this isn't just competitive—it actually undercuts some established sector and industry index ETFs, showcasing their aggressive stance in the market.

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.