Nasdaq Bear Market: Why I'm Buying This High-Yielding Nasdaq ETF Hand Over Fist as the Market Sells Off

1 week ago 11

Matt DiLallo, The Motley Fool

Thu, Apr 10, 2025, 3:18 AM 5 min read

At the clip of this writing, the Nasdaq Composite scale is experiencing a ferocious carnivore market, cratering astir 25% from its highest precocious past year. The sell-off has intensified precocious owed to increasing concerns astir however the Trump administration's "reciprocal tariff" policies volition impact the planetary economy. Many economists and fiscal experts are progressively acrophobic that they could spark a planetary commercialized warfare that could ignite a recession.

The market volatility could past a while. That's 1 crushed why I've been loading up connected the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ). The exchange-traded money (ETF) enables investors to payment from the upside imaginable of the Nasdaq-100 with little volatility. One mode it does that is by distributing income to investors each month. With the ETF's terms falling alongside the market, I expect to make much income and higher returns from this presumption in the future.

The JPMorgan Nasdaq Equity Premium Income ETF has a dual mandate. The money aims to supply investors with a monthly income stream. It besides seeks to give them exposure to the upside of the Nasdaq-100 with little volatility.

The money has a two-part strategy to execute this goal:

Underlying equity portfolio: The fund's managers usage an "applied information subject attack to cardinal research" to conception a portfolio based connected the Nasdaq-100. It holds galore of the stocks successful that index, though it doesn't lucifer the index's allocation.
Disciplined options overlay strategy: The money writes (sells short) out-of-the-money (above the existent price) call options connected the Nasdaq-100 index. By penning options, the money generates premium income (it gets paid the option's value, known arsenic its premium). It distributes this income to investors each month.

The money aims to present similar upside to the Nasdaq-100 index. The ETF outperformed that scale successful the 4th fourth of 2024. Contributing to its outperformance successful the play was a higher weighting to Marvell Technology, which had a beardown 4th owed to the important maturation of its information halfway segment. The money besides benefited from a little weighting to Applied Materials, which slumped successful the play owed to concerns astir its guidance for the upcoming quarter.

The ETF has besides delivered a amended comparative show during the Nasdaq's plunge this year.

The different origin contributing to its higher comparative full instrumentality compared to the Nasdaq-100 is the options premium income the money generates and distributes to investors. This income fluctuates from period to period based connected the amount of income it collects from penning options connected the index. What's notable astir options premiums is that marketplace volatility is 1 of the things that factors into the price. As marketplace volatility increases, options premiums rise. Because of that, the income generated by this money should summation successful the adjacent term, which should enactment higher monthly organisation payments.