SCHD, JEPI: Investors Buy Them Together

When it comes to popular income-oriented ETFs, it’s tough to top the value proposition and passive-income generation potential of the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) and the JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI).

Indeed, why bother with anything else when shares of the JEPI yield just north of 8.3%? And with pretty much the biggest name in the banking scene backing it, the JEPI stands tall in the specialty income scene that’s grown quite competitive over the year.

The JEPI on its own entails a great deal of risk, especially for those who seek greater yield stability. For investors, I think we should view the SCHD and JEPI ETFs not as rivals competing for your investment dollar but as fantastic complements that are best bought together. Undoubtedly, they both bring a great deal of passive income to the table, with JEPI offering more than double what the 3.8%-yielding SCHD provides.

Still, for those seeking the perfect mix of stability in dividend-paying stocks (like those featured in the SCHD) as well as an income boost from call option premiums, I find the SCHD-JEPI combo to offer a potent one-two punch. 

Should you buy SCHD and JEPI together? What would the balance look like?

So, should investors buy them together? Or is it better to stick with one over the other? As always, the right answer will differ based on one’s tolerance for risk, desired yield, and, of course, other factors that we won’t cover in this piece.

For those looking for greater personalization, a financial adviser is always available to answer your questions, such as how to balance the SCHD with the JEPI and other parts of your portfolio. Indeed, until there’s greater clarity with how the entire portfolio looks as well as the passive income situation (maybe you’ve got a pension), a one-size-fits-all isn’t going to cut it.

In any case, finding the right balance between two ETFs at the bedrock of your portfolio is vital. Someone who’s more dependent on income predictability may wish to have more allocated towards the lower-yielding SCHD rather than the ultra-high-yielding JEPI. And for someone who’s fine with the strategy behind the JEPI (equity and equity derivatives), perhaps there would be a bit more weighting towards the JEPI. Indeed, the JEPI’s shares look quite choppy and unrewarding, especially after the latest 8% slide off 52-week highs.

That said, when you factor in the distributions into the equation, the ride is undoubtedly smoother than the 0.57 beta suggests, making it a great place to put money to work if you seek less correlation to the S&P, which experience an uptick in volatility last Friday, as Trump tariff threats on China rocked financial markets, sending the Nasdaq 100 nosediving 3.5% in a single day.

JEPI has a fatter yield and better relative performance of late. Why combine it with something like the SCHD?

Either way, JEPI stands out as less choppy with higher income, but the SCHD stands out for its deep, diversified portfolio of individual dividend stocks. While the JEPI looks like a better ETF to own for results and income, I think that the low correlations between JEPI and SCHD make owning both to the betterment of diversification.

Also, a scenario does exist where the SCHD could outperform, even with the hefty yield of the JEPI intact. If the components underneath the hood of the SCHD start really gaining, the SCHD could offer more in the way of capital gains potential.

Indeed, SCHD isn’t known for its capital gains, but, at the very least, it doesn’t have the same capped upside that a covered call ETF would need to deal with. For instance, if the energy, consumer staples, and healthcare sectors, which comprise more than half of the SCHD, were to take off, the SCHD would be more of a heavy lifter.