The strong stock market rally at the end of this year may have drawn away some of the interest in funds that use options to generate income, but Wall Street asset managers are betting that the category’s future is still bright. The face of the sector is the JPMorgan Premium Income ETF (JEPI) . JEPI has seen inflows of nearly $13 billion this year, the most of any active ETF in the U.S., according to FactSet, but those inflows slowed to a trickle in the final weeks of the year. Part of the reason for the slowdown could be that income funds are less attractive in a market rally, as opposed to the downturn of 2022. Through Dec. 20, JEPI had a total return of 8.7% year to date, compared to 24.3% for the SPDR S & P 500 ETF Trust (SPY) . The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) has seen more inflows recently than JEPI but has likewise underperformed the Nasdaq-100 index. The underperformance during rallies is to be expected from covered call funds, which trade off potential future upside for income today. Bryon Lake, global head of ETF Solutions at JPMorgan Asset Management, said there was a “mismatch” between investor expectations early this year and what the market actually did, so he doesn’t think investors should be disappointed with the performance of the funds. “The scenarios when [these funds] are going to struggle is straight up markets. And what I think investors were willing to do this year is, they were much more worried about the downside, so to take some of that off the table and still participate and get a positive return in that environment, was absolutely the trade that they wanted,” Lake said. “And I think in hindsight if you said that based on what you knew coming into the year, are you happy with what you did? And I think to a person they would say yeah, absolutely.” Even with this year’s relative underperformance, Lake said he still thinks income-focused funds like JEPI should see “relatively evergreen,” consistent demand because people…
2023-12-25 09:08:00
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