The JPMorgan Equity Premium Income ETF (JEPI) and the Schwab US Dividend Equity (SCHD) funds are popular among income-focused investors. JEPI has accumulated over $45 billion in assets, while SCHD has $116 billion in assets, making it the biggest dividend ETF in the world. So, which is a better fund to invest in?
SCHD ETF is firing on all cylinders on anti-AI demand
To a large extent, SCHD is not really a dividend ETF because of its low yield of about 3%. For example, the Vanguard Value ETF (VTV) yields 2% and is not considered a dividend fund.
Even so, SCHD has become one of the best-performing funds in the world this year. It has had a total return of 32%, much higher than S&P 500’s 12%.
The ETF has become popular among investors this year, drawing over $24 billion in inflows since January. Its popularity is mostly because it is made up of traditional companies that have little exposure to the AI industry. About 50% of its composition are companies in industries like healthcare, consumer staples, and energy. Technology companies make just a 14% of the fund. As a result, investors have rushed to its safety as fears of the AI bubble will burst escalate.
Technicals suggest that the SCHD ETF has more upside to go. The daily chart shows that the fund bottomed at $32.37 on October 5 and then resumed the upward trend. It jumped to a record high of $35.35 on Thursday, moving briefly above the crucial resistance level of $35.30.
The risk, however, is that the fund has formed a double-top pattern whose neckline is at $32.37. This pattern often leads to a bearish reversal. However, there are signs that the ETF will continue rising, especially if it moves above the key resistance level of $35.50. A move above that level will point to more gains, potentially to $40.
SCHD ETF chart | Source: TradingView
JEPI has a higher dividend yield, but lags in performance
For many investors, JEPI seems like the better dividend ETF, thanks to its higher payout, which stands at about 8%. It also pays its dividends each month and has an exposure to the biggest companies in the United States, including popular names like Nvidia and Microsoft.
The fund uses the covered call strategy, where it invests in companies and then writes call options on the S&P 500 Index. It gets its dividends from the call premiums and the dividends paid by the companies.
The challenge, however, is that, while the SCHD ETF has higher dividend yields, its total return is usually much lower than funds. Its total return this year is just 5.57% against the S&P 500’s return of 12.3%. In the last five years, JEPI has returned 41%, much lower than SCHD’s 62% and S&P 500’s 79%.
Therefore, there is a likelihood that the SCHD ETF will continue doing better than JEPI in the foreseeable future. Indeed, history shows that covered call assets underperform their core assets.
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