The Secret Sauce: ELNs
JEPI is often called a "Covered Call ETF," but that is technically incorrect. It does not sell calls on the stocks it holds.
Instead, it invests 80% of its money in "Low Volatility" stocks (like Hershey, Coca-Cola, Progressive) and 20% in Equity Linked Notes (ELNs).
Why JEPI is Unique
Most income ETFs are just "The S&P 500 minus upside." JEPI is different. Because it picks its own defensive stocks, it can fundamentally outperform the S&P 500 during bear markets.
In 2022, when the S&P 500 dropped nearly 20%, JEPI was down significantly less (factoring in dividends). That is why it sits in millions of retirement accounts.
The Criticism: Tax & Upside
The Tax Drag: The income from ELNs is taxed as "Ordinary Income." There is no special tax treatment.
The Upside Cap: In a raging bull market (like 2023-2024), JEPI will lag significantly. If you are young and aggressive, JEPI might be too slow for you.
Verdict: Still a Buy?
Yes, for Defensive Income. We rate JEPI as a robust Tier 3/4 hybrid. It is safer than most Covered Call ETFs but riskier than bonds.