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If you’re an ultra-high yield investor, you’ve probably had the JPMorgan Equity Premium Income ETF (JEPI) and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) on your radar for a while.

JEPI really grew to prominence in 2022 when the Fed Funds rate started the year at 0%, investors were struggling to generate any kind of decent yield from their portfolios and inflation began to spin out of control. JEPI’s double-digit distribution yield, generated mostly from the written call options on the underlying portfolio, filled that need. Over that year, AUM tripled to more than $17 billion and they’ve been growing ever since.

JEPQ, which used Nasdaq 100 stocks and options for its portfolio instead of JEPI’s foundation of the S&P 500, debuted in mid-2022 and has similarly seen huge interest.

How Do JEPI & JEPQ Work?

At a high level, JEPI and JEPQ are covered call ETFs, but they’re not necessarily structured like many of the covered call ETFs that are out there.

To generate the covered call exposure, the funds invest in equity-linked notes, which combine the equity exposure and written call option exposure within an individual security. That is combined with an actively managed equity portfolio consisting of selected securities within the designated index.

In JEPI’s case, it looks to invest in S&P 500 stocks with value characteristics, favorable risk/return profiles and lower volatility. In JEPQ’s case, it can invest more broadly within the Nasdaq 100 stocks, but also tries to create a lower volatility profile.

JEPI: Yield & Top Holdings

JEPI currently has 130 individual holdings, but is pretty balanced from top to bottom. You see several of the magnificent 7 names, including Amazon, Facebook, NVIDIA, Alphabet and Microsoft, in the top 10 as well as an overall tech-tilted feel. Visa, Mastercard, Trane and ServiceNow are all adjacent to the tech sector, if not directly tied to it.

But tech only accounts for 18% of the overall portfolio and there are six sectors overall with allocations of at least 10%. This portfolio is pretty well-balanced.

JEPQ: Yield & Top Holdings

If JEPI is well-balanced, JEPQ is not. The magnificent 7 all appear within the top 9 holdings. The other two are Netflix and Broadcom, two companies that probably aren’t that far off. Being based on the Nasdaq 100, JEPQ’s portfolio is always going to be heavily tech-tilted, but this doesn’t look a whole lot different than the QQQ.

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JEPI & JEPQ: Outlook For 2025

If you’re measuring these two funds against the broader market and assessing whether they can beat the S&P 500 and Nasdaq 100, respectively, it really requires a fairly narrow set of circumstances.

In a best case scenario, the indices would move relatively sideways with low volatility. That way, they could avoid a lot of the lagging performance to the upside, while still capturing the outsized yield that would help them outperform the indices overall and hopefully generate a positive total return in the process.

A less ideal, yet still outperforming, scenario would come from a down market. In that case, JEPI & JEPQ would still, in theory, be exposed to the downside losses, but the extra yield would help offset some of that loss and beat the indices.

In 2024, however, stocks were mostly in an uptrend, which is the scenario where covered call ETFs tend to lag, sometimes significantly.

JEPI trailed the S&P 500 by roughly 14%, which shouldn’t be surprising given the direction and volatility level of the broader market. JEPQ did substantially better, only trailing the Nasdaq 100 by 2-3% (and doing so with about 25% less volatility).

The question of how well JEPI and JEPQ could perform in 2025 really depends on which of the three scenarios laid out above is more likely to come true.

From purely a yield standpoint, higher volatility = higher option premiums = higher yields for the fund. JEPI’s current 8% yield and JEPQ’s 11% yield are already high by most standards, but have a lot of potential to move much higher should volatility pick up. In 2022, we saw steady volatility throughout the year and that resulted in yields north of 13% for an extended period. With so many unknowns facing the market in 2025 - inflation, tariffs, geopolitics, interest rates - I think volatility has a good chance of picking up, which would lead to higher yields for both of these ETFs.

But higher volatility also usually leads to losses for stocks. U.S. stocks are on pace for their second consecutive year of 20%+ gains, which has only happened a couple other times over the past 100 years. That’s to say that I think investors should prepare themselves for low or even negative returns in 2025, despite what a lot of brokerage forecasts would have you believe.

On the other hand, the U.S. economy is still in pretty good shape. GDP growth is at 3% and the unemployment rate is still just above 4%. If the economy can hold anywhere near those levels throughout 2025, stocks could very well produce another good year. However, with the Fed unlikely to cut rates much or even at all in the coming year and a much less friendly global trade environment likely to emerge, the tailwinds might not be there.

If we do happen to get a low return year for the major averages and volatility doesn’t increase substantially, it could be a very good year for JEPI and JEPQ, at least relative to their underlying benchmarks.

Think of it another way. JEPI and JEPQ will start the year with 7-10% yield advantages. If those sustain, the S&P 500 and Nasdaq 100 will need to pick up 7-10% returns via share price appreciation just to keep up. What are the odds that the indices produce another 10% gain after already gaining 60% and 100%, respectively, over the past two years? I’d put the odds at less than 50%.

That means I think there’s a good chance that JEPI and JEPQ will outperform in 2025.