Mike, it really depends on your overall strategy and what you are trying to accomplish with it... I'm not sure why you are holding cash (SWVXX) in an account that won't be tapped for ten years? Or why you are looking for yield instruments with that kind of a time frame?
My wife is looking at a 2028 retirement. Ten years prior, in 2018, our retirement accounts had 82% equity, 17% long-term fixed income (the TIAA Guaranteed Account) and 1% cash. No point in holding cash with a ten-year time frame. (Our taxable accounts were 40% in cash/CDs, but that was just our emergency fund and the beginnings of our college savings for the 2021-2028 time frame.)
I feel similarly about option-income funds. They are a solid way to generate income in retirement, sharing in the returns of the underlying index but with a much higher income stream and somewhat reduced volatility. Those last two aspects are key in managing the distribution phase of a retirement. But an account with ten years to go should still be in "growth" phase, and JEPQ/SPYI clearly underperform on that.
JEPQ invests in and writes calls against the Nasdaq-100 index, i.e. QQQ. If you compare it against other assets and other indexes, the total returns look really good. But fundamentally the assets mirror QQQ, just with an option strategy layered on top of that. JEPQ has 36% returns in 2023 and 21% returns YTD. QQQ has 55% returns in 2023 and 22% returns YTD. And that's probably what you should expect going forward? It will tend to lag badly when QQQ takes a run forward, but more or less match the performance in other years. (It is a very recent fund, so we don't have enough of a history to say more than that.) JEPQ makes total sense if you want to pull income off the QQQ stocks, but it doesn't make sense as a growth instrument. It will only outperform QQQ in very specific scenarios -- not impossible but not probable. (In addition, I recommend you read Morningstar's take on QQQ. They see it as a "flawed" index strategy, not my first choice for most portfolios despite its strong recent performance.)
Much the same relationship holds between SPYI and SPY. SPYI offers a solid approach to generating income off volatile (and low-yield) assets in the S&P500, but the nature of the fund means that it is likely to underperform on a total return basis over time. Again, it is too young a fund to support this with hard numbers.
QDPL is a different approach to generating income off the assets of the S&P500, also a solid approach for those who need the income, also potentially a drag on a portfolio in growth phase -- though in the case of QDPL it thus far seems to be neutral on the basis of risk-adjusted returns. The three-year Sharpe Ratio for QDPL is 0.35 vs. 0.36 for the S&P500 -- a virtual tie. This means that QDPL lowers the portfolio volatility by the same proportion that it lowers the portfolio returns. In the context of high-yield investments, neutral is pretty good. (JEPI is also neutral relative to the S&P500 with a 0.36 Sharpe Ratio.)
But even a "neutral" Sharpe Ratio may lower performance at the same time that it lowers the volatility. Thus they only make sense if controlling volatility is a specific goal of a portfolio. (It is to me, but I know a lot of investors are dismissive of volatility in the growth phase.)
In conclusion, I would invest in QQQ or SPY in preference to JEPQ or SPYI until you actually need the income from the account. (I personally prefer SPY to QQQ, as the latter has far too much volatility for my tastes.) Your returns over the next ten years should be greater without the option income strategy, and you can add that option income component when you retire without any real market timing risk - because the base assets are the same.
However, if you believe that it is "all about the income", then your conclusions may differ. I am and always will be a total return investor -- which doesn't mean that I'm opposed to income instruments, but my primary focus is on the total return, especially during the growth phase of an account. |
