Investors are buzzing about the match-up between Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) and JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI). These two ETFs have drawn attention due to their different approaches, and it seems they are gearing up for a showdown in 2024.
They are also highly dependent on macro conditions due to their wide diversification, but at the same time, their exposure to various sectors differs. That’s why it makes sense to believe that one can outperform the other under differing economic backdrops. Therefore, this article aims to highlight the positive and negative sides of both ETFs and help investors better understand which one would be a better fit for their portfolios in 2024.
Comparing Holdings and Strategy
SCHD boasts greater exposure to the energy sector and holds fewer tech stocks compared to JEPI. Its holdings are defensive, with a focus on industrials, financials, and health care. The ETF is less diversified, with 40.44% of the portfolio concentrated in the top 10 holdings. On the other hand, JEPI focuses on high-growth tech stocks and targets a monthly high-yield distribution. Its portfolio is more diverse, spread across 135 holdings, with the top 10 holdings accounting for only ~16% of the overall portfolio.
SCHD’s expense ratio is a mere 0.06%, making it a cost-effective choice for investors. In contrast, JEPI has an expense ratio of 0.35% due to its more active management.
When it comes to performance, SCHD generated a total return of ~60% since May 2020, compared to ~50% for JEPI and ~55% for the broad market. The energy sector’s resurgence contributed significantly to SCHD’s strong performance.
However, recent market conditions have seen a shift, with JEPI outperforming SCHD and the broader market in the year-to-date returns.
JEPI’s covered call strategy allows it to generate higher yields, yielding ~9% compared to SCHD’s 3.65%. While JEPI’s yield is advantageous, its volatility may not suit all investors.
Forecasting Future Performance
The performance of both ETFs will hinge on macro conditions, which in turn impact the market and the ETFs’ asset holdings. With inflation trending downward and a gradual rise in interest rates, the market may continue to appreciate. The recent fiscal stimulus programs may further bolster this trend, boding well for both SCHD and JEPI in 2024.
In the event of an energy shock analogous to 2022, SCHD’s exposure to the energy sector will position it to outperform JEPI once again. Conversely, if the disinflation process continues and tech stocks thrive, JEPI could emerge as the better performer.
The Final Verdict
For those willing to take on higher risk, JEPI’s exposure to high-growth stocks makes it an attractive choice. However, the more conservative investor may find SCHD a better fit. Ultimately, both ETFs offer unique advantages, and a balanced approach by investing in both could be an ideal strategy for many.