The JPMorgan Premium Equity Income ETF (JEPI) has been a big hit with investors looking to get cash in a time of high inflation, but the fund could soon be overshadowed by its little brother. JEPI yields have been above 10% for most of last year, attracting significant capital inflows. Investors are still jumping into the fund in 2023, boosting its total holdings to around $26 billion. Although the fund has outperformed the market as a whole over the past 12 months, all of these new investors have not made high returns in 2023. As of May 11, the fund’s total return is just 3.4% YTD, below the S&P 500. The SEC 30-day yield has also fallen below 10%. Meanwhile, its subsidiary, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ), has been a big winner for investors. This fund has returned over 17% this year and has a 30-day SEC return of nearly 14% as Nasdaq shares outperformed the S&P 500. with the underlying index performing better,” said Hamilton Reiner, portfolio manager for both products at JPMorgan Asset Management. Launched in May 2022, JEPQ has been a hit in its own right and now has assets in excess of $2 billion. Both funds operate on a similar principle. Reiner’s team combines active stock picking with stock-linked bonds, which generate returns for the fund but limit some of the upside for products during big market rallies. The notes are structured to function in a way that resembles a covered call strategy. JEPI, which is linked to the S&P 500, has a more protective group of equity holdings, none of which is more than 2% of the fund. JEPQ, on the other hand, carries a lot of weight in some of the tech stocks that have surged ahead in 2023. “It’s about picking stocks. We’re going to look for the ones we think are long-term winners… weight them down,” Reiner said. “But because the Nasdaq is a very concentrated index, we’ll still own some of those stocks that we don’t think are as good as some of the ones we like better… We’ll just underweight them.” Since JEPQ’s equity-pegged bonds are pegged to the more volatile Nasdaq-100, the fund can generate more income by boosting its returns while capturing more market share. “More volatility means you get more potential upside by selling an out-of-the-money call option and you get more returns,” Reiner said. In the long term, the fund should return between 9% and 11%, Reiner added. The fund’s success shows that investors have an appetite for a more conservative way to access Nasdaq growth stocks. “Strategically speaking, we want to give you income and we want to give you full profit. Some strategies focus on one or the other, but we want to give you a little bit of both,” Reiner said.