Investors are flocking to low-volatility exchange-traded alternative funds and bonds in search of yield amid rising rates and an uncertain environment, JP Morgan Asset Management’s Byron Lake told CNBC’s “ETF Edge” in an interview earlier in the day. This week.
The Dow and Nasdaq posted their biggest single-day declines since 2020 on Thursday, recouping their gains from the rally from the Fed meeting on Wednesday. It was the second worst day of the year for the S&P 500.
Those looking for lower volatility than the S&P 500 may want to consider the JPMorgan Equity Premium Income ETF (JEPI), whose major holdings include Bristol Myers Squibb, Hershey, Coca-Cola and United Health Group. Its goal is to offer returns similar to the S&P 500, but with less risk.
Lake said the strategy behind the ETF, a basket of stocks and hedged calls on those stocks, has been around for decades.
“We’re targeting a 6% to 9% distributable yield because of that extra premium you get on those covered calls,” explained the firm’s global head of ETF solutions.
“But we’ve actually been able to do a little bit more than that, given the volatility the markets are experiencing these days,” Lake added.
He also recommends the JPMorgan Income Ultra Short ETF (JPST) for investors hoping to take advantage of rising interest rates and get ahead of additional hikes in the coming months.
With interest rates rising, bond prices are falling.
“Investors are using that as a cash outflow within their portfolio, but they’re still getting some return,” Lake said.
The JEPI is down nearly 9% year-to-date, while the S&P 500 is down more than 13% year-to-date through Friday afternoon. The JPST fell less than one percent.