JEPI Portfolio Manager Hamilton Reiner appeared on Animal Spirits and gave several critical insights into how the strategy works. JEPI is one of the largest ETF’s in the world, with $28bn in AUM.
The growth of this ETF has been tremendous, as shown in the top chart, below.
Hamilton may be best known in the options space as the manager of JHEQX, which implements the well known “JPM Collar” hedge. However, there was no mention of this in the interview 🤔
What is the JEPI ETF?
VIA the prospectus, the strategy seeks to:
“…deliver monthly distributable income and equity market exposure with less volatility.”
Historically, it seems the fund distributes 7-9% annually. It generates approximately 20% of its income from dividends, and the rest from overwriting S&P500 Index calls.
How Does the JEPI ETF Work?
Here are some of the core insights from Hamilton:
- The fund sells SPX Index calls* so that it reduces the chances of its stock holdings from being called away
- They “ladder and stagger” their options overwriting, selling 20% of their targeted options exposure each week. As per the prospectus: “the Fund may invest up to 20% of its net assets…[in overwriting]”
- Every week they sell ~30 delta options, with a duration just over 1 month
- *SpotGamma note here: they sell options via equity linked notes, not directly to the market. This means that JEPI is likely not trading & holding the options themselves, but working with a dealer to gain their desired exposure through a structured product.
- They like this laddering strategy as it gives flexibility based on market environment, allowing them to not cap returns and/or they can take advantage of higher volatility
- The stocks they hold are limited to 2% per position, and 17% by sector. The stocks do not have to pay dividends, but they instead focus on “blue chip quality”
- Risks:
- low VIX hurts income, it may drag it < the 7-9% historical average.
- Will underperform in a huge bull market, particularly if the rally is very concentrated in something like tech (due to the portfolios weighting caps)
The entire episode is here.
A full transcript of the conversation is below:
[00:00:00] Today’s Animal Spirits Talk Your Book is brought to you by J. P. Morgan Asset Management. Today we’re talking about the J. P. Morgan Equity Premium Income ETF. Ticker JEPI. If you want to learn more, check out all the links in the show notes and go to JPMorgan Asset Management to learn more. Welcome to Animal Spirits, a show about markets, life, and investing.
[00:00:19] Join Michael Batnick and Ben Carlson as they talk about what they’re reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Riddles Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.
[00:00:37] Clients of RitHoltz Wealth Management may maintain positions in the securities discussed in this podcast.
[00:00:45] The price of equity securities may fluctuate rapidly or unpredictably due to factors affecting individual companies, as well as changes in economic or political conditions. These price movements may result in loss of your investment. Investments in equity linked notes are subject to liquidity risk, which may make [00:01:00] ELNs difficult to sell and value.
[00:01:01] Lack of liquidity may also cause the value of an ELN to decline. Since ELNs are in note form, they are subject to certain debt securities risks, such as credit or counterparty risk. Should the prices of the underlying instruments move in an unexpected manner, the fund may not achieve the anticipated benefits of an investment in the ELN and may realize losses, which could be significant and could include the fund’s entire principal investment.
[00:01:26] Welcome to Annual Spirits with Michael and Ben. Michael, we got this email from someone last year, kind of tongue in cheek, but I think that they, they, there was some truth into it. At what yield do you put all your money into ticker JEPI? At what yield do you put all your margin into JEPI? At what yield do you mortgage the home and put all that money and margin on JEPI?
[00:01:44] Was it Hamilton who said that this was an actual, uh, email we got at the end of 2022. Hamilton is the name of the portfolio manager that we had on the call. Yeah. Uh, JP Morgan equity premium income ETF, which I guess I should have known this. I didn’t, this is the largest active ETF that there is by assets.
[00:01:59] It’s almost [00:02:00] 30 billion in assets. It’s still relatively newly a couple of years old. It’s a covered call strategy that also invests in low volatility stocks and high quality stocks. And this thing it’s just been raking in the money. And a lot of people really like it for the fact that there’s lower volatility than the market.
[00:02:18] And it has a yield from the covered call options. I wonder what percentage of people in this strategy are a in or near retirement be actually using the income. I would say for the first part, if I had to guess, I’m going to say again, I’m just completely making this up. 75% of the money in here is for people over the age of say 55.
[00:02:44] But I also bet you that a relatively small number of investors are actually taking the money, the income and living off of it. I think people, like, psychologically, investors love the idea of steady income, even if they’re not using it, even if they’re not spending it. [00:03:00] And they mentioned that they pay the money out on a monthly basis, so it’s like you’re receiving, you’re right, an income from your investment.
[00:03:07] But would, do you agree with my assessment, if you have to guess what percentage of people are using the monthly income for spending, do you think it’s a small percentage, probably a pretty decent amount that just like having that, and then I’m leaving the principal alone and I’m living off the income or whatever, like I think a lot of people have that mindset.
[00:03:21] Oh, yeah. Okay. Cause I, I would say a small number of people are using the income. Okay. You think it’s just investors who like the strategy? I think it’s investors. That makes sense. I’m guessing that there’s a lot of advisors in this too. So we talked to Hamilton Reiner, who’s a portfolio manager and helped create this strategy and great talk.
[00:03:39] I think our analyst Sean said that he would have bought used paper from him. This is a very good engaging conversation. Uh, here’s our talk with Hamilton.
[00:03:52] We are joined today by Hamilton Reiner. Hamilton is an MDPM and head of U. S. equity derivatives at JPM Asset Management. Hamilton, welcome to the show. [00:04:00] Thanks for having me guys. Truly appreciate it. We get a lot of questions in our inbox from people. Sometimes they’re broad market base. Sometimes they’re specific to a fund.
[00:04:09] And I think the fund we’ve gotten the questions about most in the past 18 to 24 months is JEPI, which is JP Morgan’s covered call strategy ETF. And there’s a lot of people who love this strategy and want to learn more. So I think we’re excited to have you on today. Maybe just give a broad overview of the strategy, how it was created and kind of the process for a stock selection and how the cold cover call thing works.
Hamilton:
[00:04:34] Absolutely. So my background is 35 years of investing in equity and equity options. And when I first joined JPMorgan Asset Management, the idea was how can I actually do options in a delivery mechanism that can actually make it more widely used. So with JEPI, our goal was actually to try to find a way to do call overriding, but do it in a ETF so that the masses could actually invest in it.
[00:04:57] When I think about, uh, traditional call [00:05:00] overriding strategies, oftentimes people work really, really hard to go out and find their favorite stocks and then still calls on their favorite stocks and they end up rooting against themselves where they’re saying, I hope it goes up, but not too much. I mean, imagine thinking about that as an investor or you, uh, you end up having your winners taken away from you and you’re left with your losers.
[00:05:21] So when it comes to the call overriding component, we actually like selling options at the index level. That way we get to remove beta to get the income, but never have our stocks taken away from us. Hamilton, can we explain the basics of a covered call? Let’s say that somebody owns Apple. They own a lot of Apple.
[00:05:37] And for whatever reason, they, it could be a million reasons. They want to generate some income. They want that, you know, maybe they have a, a near term bearish view, wherever the option, the strike is at. Or the maturity, what, what, what are the mechanics behind a covered call? Just basics. How does it work? So traditionally the way a cover call strategy [00:06:00] works is you own a stock and then you sell an option.
[00:06:03] And as you said, Michael, it could be because you’d sell some of that stock at a higher level. Anyways, you would feel like, uh, maybe it’s dead money and you just feel like you can generate some income short term. But historically, you own an underlying stock or an index, and then you sell them at the money or out of the money option on that same stock or index.
[00:06:25] The challenge though is, as you folks know, everyone will sell a stock of 10% until it goes up 10%. And they’re like, I never thought it would get there. And then they feel like, well, why did I sell this call? I need to buy it back. And you end up locking in a loss. Because oftentimes when you actually sell that out of the money call, it does create a tax event because if you deliver your shares, you now have a taxable event.
[00:06:50] So traditional call variety is you own a security, you sell an option on that security, Michael. So the, the, the way that options are priced is one of the big components [00:07:00] is volatility. I think this is one of the reasons that so many people like to. Do call options, sell call options on individual securities because most or many securities, I guess, are more volatile than the market, meaning maybe they can pick up a little more money over selling those options on the market, but you do it against the market.
[00:07:16] So obviously the stock market itself is never predictable, but does that make your income stream a little more predictable than it would be if you were doing it on individual securities? So the reason we do the index is because we think that there’s value in our stock selection and we never want to have our stocks taken away from us.
[00:07:32] And as you know, JEPI is expected through a cycle to give our investors seven to 9% distributed income. And that’s doing options on the index. Yes. If I did options on individual names, it could be more income, but the risk of having those stocks taken away from us significantly outweighs that modest amount of income and to be quite frank, no, one’s ever really complained about seven to 9% distributed income.
Michael/Ben
[00:07:52] So there’s two components of the strategy. There’s the income that you, that you receive from selling the calls. And then there’s the active [00:08:00] component. So we’ll get to the, we’ll get to the stock selection, but before we do that, I just want to spend another minute on the calls that you’re selling. I assume that this is formulaic, um, and that, that there’s not too much discretion or, or maybe I’m wrong.
[00:08:12] How does, how does it work? Are you, are you late, uh, laddering this out? Is it just, you continue to roll? How, how, how does the option selling strategy work? So when I think about the approach we take from an options lens, there’s a couple of things that are part of my investing philosophy. Number one, it’s not just about income.
Hamilton:
[00:08:29] It’s about total return. So we always sell out of the money options, right? Oftentimes people sell at the money option for going all the upside. We want to get balanced to our portfolio, some upside and some income. The other thing that I think is important is you need to have some type of, uh, flexibility based upon market environments.
[00:08:49] So if you always sold an at the money call, or you always sold a 2% or 5% of the money call, those are not always the same animals. I guess the word animals means a [00:09:00] lot of talking to you guys. But when I think about the market environments, a 2% of the money call is different if the ball is 16 versus 24 versus 32.
[00:09:08] So the approach that we take is we sell an option that has a 30% chance of finishing their money or a 30 Delta option. So when market volatility is average, let’s call it that 16 to 18, we’re going to actually sell calls about 2% of the money, but when volatility is elevated, like it was last year, we’re selling calls that are three or even higher out of the money.
[00:09:29] And the options that we sell, Michael are about. Just over a month in duration. But one of the historical challenges we call overriding strategies is you sell an option on July 1st and then a week later the market’s up. Now what do you do? Do you buy that option back, lock in a loss? Do you tell your investors there’s no more upside for the next three weeks?
[00:09:50] Neither one of those are good outcomes. So what we do, we ladder and stagger our options doing 20% of our options each and every week. That way there’s always more upside to be had by our [00:10:00] investors. We’re never, ever capped out. Also, if volatility is a little bit higher next week, I get to take advantage of it.
[00:10:06] If it’s lower, then it’s a little bit of a headwind, but either way, this idea of laddering and staggering as well as always selling options out of the money. And when options are out of the money, the idea here is we’re gonna give you some of the upside, some of the income too often people just focus on just the income.
[00:10:20] For us, it’s about total return as well. So 2022 was, was, was good for, for, for, I don’t want to assume anything. I assume stock selection. We’ll get to that. But it was a good year for selling income for selling calls because there was volatility. 2023 is a much different, as much different environment. Even with this recent sell off, the VIX is, I don’t know where it is today, 18 or so it’s still relatively low.
Michael
[00:10:39] So you have a systematic way of taking advantage of upside. In, in call premium, should it materialize, but it’s not like discretionary where you’re going to wake up on Tuesday at nine 45 and say, no, you wake up at nine 45, but where you’ll say, okay, now is the time now is the time to sell it. It’s more systematic than that.
Hamilton
[00:10:57] Absolutely. It’s a very disciplined approach [00:11:00] because the fact is you just don’t know what the next move in the market’s going to be. You may feel as though the market is upside. Speak for yourself. I actually have a magic eight ball in my office. If you want to borrow it, Michael, but the fact is, is that you don’t know.
[00:11:13] So if you have a very disciplined approach, it makes a strategy more predictable. As soon as you actually add that layer of unknown strategies, go from very investable to uninvestable. We think our discipline approach makes. People will be able to understand what to expect, why we’ll outperform in certain reach environments, why we may underperform in certain environments.
Ben
[00:11:34] I think that expectations is good for people who aren’t as familiar with the strategy. So I actually have a really good question here from one of our listeners. So I think this will kind of help set those expectations. So they say, they say they have a decent size investment into JEPI. And they said it’s been remarkable how little volatility JEPI has seen relative to the broader market while earning a pretty fat yield.
[00:11:51] The only downsides I can detect so far is that it will get outperformed by the S& P if and when we are in a bull market. This was written in 2022, obviously. And [00:12:00] the taxes on the yield are pretty nasty relative to regular dividends. I can handle both of those downsides for the money I have invested. That said, it feels a little rosy.
[00:12:07] What am I missing? What are your thoughts? What are the trade offs for a strategy like this? And, and my thought would be that yes, in a raging bull market, you’re going to underperform in a bear market. You’re going to do a little better. So it’s, it’s a less volatile strategy. So maybe you could make some comments there based on this question.
Hamilton
[00:12:22] So Ben, I’m really happy you brought volatility because one of the nice benefits you get of selling calls is not just the yield. You also have, it reduces volatility and beta. So a strategy like this. It’s not expected to outperform 500 in that market. How could it with 35% less volatility and beta than the market without leverage?
[00:12:43] Cause I don’t believe in leverage. So there’s no leverage in my strategy. So that’s the first thing. The second thing is the taxes. I’m not allowed to give tax advice. So there’s my disclaimer. When you think about it, our dividends in our long portfolio are going to be around 2% and then the rest is going to be considered [00:13:00] a coupon, very similar to like any other fixed income product.
[00:13:03] I’m not sure if I’d call it nasty or rather what every other income oriented product pays out. It’s taxable. Except for munis. It’s taxable. Exactly. Now, funny enough when during COVID, I was on a client call at home and the client said to me, so this would be better than a qualified account. And I said, everything’s better than a qualified account.
[00:13:23] And my daughter who’s was 20 at the time. Now she’s 21 or 22 comes up to me and says, dad, it’s like Frank’s red hot. Put that stuff on everything. And so, so when it comes to taxes, you know, we want to make sure that we are as tax efficient as we can be. We’ve never had a cap gain distribution. We don’t anticipate having one, but we can’t promise anything.
[00:13:45] But as far as other things that you brought up, Ben, here’s what I would say. There’s three things that could happen with the market. Up a lot down a lot or flat ish up a little down a little flat in an up market We’re not going to keep up we can’t but even in a year like 2021 We’re up [00:14:00] 21 and change with market up 28 and change not so bad with 35 volatility beta The market’s down a lot that more conservative higher quality portfolio plus our options premium helps us eat less of the downside But going back to the question from one of your listeners, what would be some other challenging environments for the strategy?
[00:14:20] number one the becks Michael talked about it before, if the VIX is below 10, like it was in 2017, the income is going to be lower. Long term, we expect 7 to 9, but if the VIX is below 10, like it was in 2017, for 50 of the 250 days, we’re going to be below that long term average of 7 to 9. Another challenging environment would be, what if it’s a very narrow based rally?
[00:14:43] Well, if it’s a very narrow based rally, we’re going to be much more of a broad, uh, long portfolio, capping every name at 2%. Create that more diversified portfolio for many clients is a welcomed addition. Why? Because they have highly concentrated positions in their growth or their core [00:15:00] portfolios. We give them a great diversification because we cap every day with 2%.
[00:15:03] And then lastly. When it comes to life, I’m a glass half full person, no getting around it. When it comes to investing, I’m absolutely glass half empty. What could go wrong, not what could go right. So we want to make sure that if and when the market goes down, that long portfolio hangs in a little better.
[00:15:21] So that higher quality portfolio, we cap every sector at 17. 5%. So we’re going to be structurally underweight tech in that portfolio. And we could talk about GEPQ at another time, how if you really want tech, how you can combine it with that. But so, if tech does all the heavy lifting of the market, the long portfolio could struggle a little bit.
[00:15:38] If it’s a narrow based rally, the long portfolio could struggle a little bit. But the income’s still gonna be pretty darn good. And then lastly, if vol goes really, really, really low, the income’s gonna be a little bit lower than that long term average of 79. Hamilton, one of the things that is evident in studying the market is that investors are risk averse.
[00:15:58] I think most investors [00:16:00] have this mantra, even if they don’t define it, they don’t know it, they won’t, they don’t spell it out. It’s in the back of their head, which is this, I’d rather be out and wish I was in than in and wish I was out, right? Like people are risk averse. And so I think that, that is part of what is so attractive about the strategy is it allows you to be in, and if things go bad, it’s not that you’re going to avoid the downside, but it’s going to be a little bit less, or depending on how, it’ll be, it’ll be less bad than the overall market.
[00:16:30] Uh, generally speaking, no guarantees, of course, depending on how stock selection works. So the, the, the, where I’m going with that is a long way, long winded, uh, way of saying you launched this in 2020. And it went from zero to 28 and change billion three and a half years later for something that is not, you know, purely pass.
[00:16:53] It’s not passive at all. That’s not an index based product. That’s, that’s impressive. So what, I guess I [00:17:00] just described it, but in your, in, in, in your estimation, what is it about this product that has really resonated with the market? I think the explainability, you don’t need to get all of the upside, but if you know that you’re getting that income today, the second thing is I’m from the Northeast.
[00:17:14] I grew up in Connecticut. I still live in Connecticut. Income never goes out of style, like LL Bean boots. It just does not go out of style. Income always fits into people’s portfolios. And then if you create that positive asymmetry, a little bit more of the upside relative to the downside, Michael, I think that actually also resonates.
[00:17:33] But one of the things that we’ve learned in that my, you know, nearly 14 years of working in JP Morgan is if you work with advisors and portfolio managers and CIOs and you help them understand not what you do, but rather how to use a strategy, it actually truly resonates. I think we’ve done a pretty good job of helping people understand how to use the strategy.
[00:17:55] The best analogy I’d give you is. If I start talking to you about [00:18:00] how people make the sausage, you may actually be forever afraid of eating it. But if I help you think about how to use it on an egg sandwich, in a sauce, on a pizza, in a stromboli, whatever, you’re much more likely to find a way to use it.
[00:18:13] So I think we’ve done a pretty good job helping, uh, investors understand how to use it. It’s something that goes back as long as time as far as income and portfolios. On the income side of things, I totally agree with you that that’s something that will always just resonate. And especially since we have.
[00:18:28] It’s 70 million plus baby boomers retiring. Some of them are already retired. Some of them are going to be retiring in the years ahead. That income and less volatility is going to be way more attractive. How often is the income paid out of this strategy? Because I’m sure people see that yield and they go, Oh my gosh, that’s great.
[00:18:43] I could, I could live off something like that. How often is that income distributed to investors? We pay it out monthly and every month net of fees, we’ve had 100% of our dividends. And 100% of our options premium. Now, some people have asked us, Ben, why don’t you, you know, bank some, [00:19:00] save some for a rainy day.
[00:19:01] We don’t believe in that. And the reason we don’t believe in that is because if markets are more volatile and income is elevated, you’ve earned that with me. Because you’ve navigated this market, which is more volatile, and we, and you’re a little bit above average income. So we actually just pay out 100% net of fees each and every month, Ben.
[00:19:18] Let’s talk about the portfolio. What’s behind the construction in terms of stock selection. Sure. So I’m very blessed to work at JP Warren asset management, where we have a core fundamental research team, over 21 analysts with over 20 years. Of experience. And what we do is a traditional, you know, discounted cashflow process bottoms up, not looking macro, just bottoms up, looking out to the medium to longterm, as far as stocks that we find fundamentally attractive.
[00:19:46] However, once we actually find those stocks, we find fundamentally attractive, we look even deeper. We’re looking for those stocks that have less price volatility and less earnings variability. Why, as I [00:20:00] highlighted before, it’s not what could go right, but what could go wrong when markets go down, these higher quality, more predictable earners tend to hang in better.
[00:20:08] I know I’m dating myself, but they’re blue chip names. Those are the type of names you want to own. In addition, the strategy is called equity premium income. So you would naturally think that we are naturally gravitated to dividends. We’re not dividends. Do not come into the investment process. Over 10% of the portfolio does not pay a dividend.
[00:20:26] Why we want to own Google. We want to own Berkshire. We want to own great quality companies, regardless. They pay a dividend or not. And therefore those stocks, I wish I could say always, but don’t always. But usually go down less than the market when the market goes down. So that’s why we choose this group of stocks to have these higher quality names, tend to hang in better when the mark goes down.
[00:20:52] How often are the stocks changing the portfolio and what’s the turnover look like? So the turnover, the portfolio is about 40% on the stock [00:21:00] portfolio. It’s about half. Name changes, just new names coming in and new names and old names going out. And then the other half is much more a stock is down and we’re adding a little bit to it or a stock is up and we’re peeling a little bit back.
[00:21:14] But I would say every single day when you think about forecasting future expected earnings and cash flows, you know, your, your analysis of those stocks change, but because you’re looking to the medium to long term, it doesn’t just switch because the stock is up or down 2%. It’s a longer term time horizon, which we’re doing this analysis.
[00:21:33] Hamilton, you mentioned one of the rest of the strategy is, is a narrow market, which would be a risk to any strategy, right? For the most part. Uh, so that’s the environment that we’re in this year. It’s August it’s Friday, August 18th. The S and P 500 is up 15%, you know, we don’t have to spend too much time on the magnificent seven.
[00:21:50] Everybody knows the story there. Uh, and so the S and P is up 15. Jeppy’s I’m looking at total return Jeppy’s up five, but if you compare it to, let’s say [00:22:00] RSP, which is the equal weight, it tracks, it’s basically, uh, let’s say it’s, it’s the same thing. 5. 1 versus 5. 1 versus 5. 1. Um, but if you look at the price variability, This has had a much, much smoother ride than an equal weighted portfolio.
[00:22:16] This is part of the thing that attracts people to a strategy like this. Absolutely. I mean, when you sell an option, you get all the credit for the income. You never get any credit for lowering volatility and beta. But to me, that’s equally important, Michael, because that smoother ride helps folks stay invested.
[00:22:33] Now, given where we are today, to your point on the narrow based rally, the fabulous seven or the magnificent seven, I mean, what if the other 490 names begin to wake up? What if the higher quality names that have been basically unloved this year, but we’re very loved last year, begin to grow into their 2024 numbers.
[00:22:53] This strategy could do quite well in that environment, or if we just muddle on through to year end, because if [00:23:00] I was on this podcast, uh, December 31st of last year, and I’d say, as you just said, on August 18th markets of 15%, we would take it and say, done. Especially with all the strategists on CNBC and Fox business and Bloomberg TV trying to scare the heck out of all of our clients.
[00:23:20] So if we’re, if we’re bringing both sides together of the stock picking and the covered call, a good way to, to describe this strategy would be the stock selection is lower volatility names, higher quality names, and then with a covered call overlay. That’s kind of the whole strategy if someone wanted to understand this in a 30 second elevator pitch.
[00:23:39] Absolutely. And the covered calls, reduce beta, never takes our stocks away from us. The covered call actually generates some income, which is part of your total return. Because I’m glad Michael just said, let me look at the total return of the strategy. Because with the income, absolutely is part of your total return.
[00:23:55] Just because I’m giving it to you, does not mean I don’t get credit for it. I’d like to get a little bit of credit for it. [00:24:00] And therefore, the strategy does give you that multi pronged approach to total return. You’re going to get some dividends, some options premium, and then some of the upside. That three pronged approach to return works quite nicely in most market environments.
[00:24:12] This is a, uh, it looks like it’s a roughly equal way to portfolio. I’m guessing there’s like, you know, it’s not equal in the sense that they’re all the same, but there’s drift involved, right? The prices go up, prices go down, some get bigger, some get smaller. Maybe take a second and just talk about some of the resources that you have at JPMorgan to help you with the stock selection.
[00:24:28] Absolutely. So I told you we have 21 analysts and they’re, and they’re, they’re incredible. The first thing I would say is they’re not just analysts. What is the traditional role of an analyst? They knock on your door, Michael, and they say, you know what, I think you should buy stock X, Y, Z. You buy it, it goes up.
[00:24:43] You guys high five each other. It goes down. They hide from you for months because they don’t want to have to face you for buying a stock that went down or you don’t buy it and it goes up and they’re like, I told you so, or something like that, our analysts [00:25:00] actually have real skin in the game. They actually are stock picker, stock selectors.
[00:25:03] We, they actually are part of running an analyst fund, a best idea analyst fund. So you see their conviction as to how they put. Their allocations and their money into their securities. So they’re not just analysts who say, I told you so, or you should do this. They’re actually putting their money and clients money into their strongest and highest conviction ideas.
[00:25:26] Number two, one of the nice things that has happened to active managers as passive has grown is it’s easier to get time with managements, right? If assets used to be. 80% active, 20% passive. Now that it’s 50 50, I have less people to compete with, to get in front of managements and talk to them. So when we have that type of approach where we have these analysts that do deep analysis, they each cover between 25 and 35 names, they actually know the CEOs, the CFOs, the CEOs, in some cases, some of our analysts have been doing this for 20, [00:26:00] 30, or even longer years.
[00:26:02] Boards talk to them, CEOs talk to them about, I’m thinking about bringing this person into my firm. What do you think? They’re really being consultative to many of the firms that they cover. So it’s definitely competitive advantage for us. Michael Hamilton, when it comes to the success of an ETF. Some strategies are going to do well regardless because there’s just always going to be demand for them.
[00:26:19] I agree with you that the income side of this, this strategy probably would have done well whenever it was released. But it came out, it looks like a little over three years ago. 2022 was a great year for this strategy. There was, there was a Wall Street Journal article that talked about all the money going into covered call strategies.
[00:26:34] JEPI was, was one of the funds that was named. If I injected you with truth serum, and when this thing was released three years ago, and you looked back on it now, would you be… Surprised at how big the strategy is. I think it has almost 30 billion in assets. Was this expected? How are you feeling personally for the success of the strategy in terms of, of bringing in assets?
[00:26:53] So Ben, you don’t need truth serum. Here’s what I’ll tell you. Anyone who can sit on this podcast [00:27:00] or anywhere and said, I would expect a strategy in three and a half years to become the largest active ETF in the industry at over 28 billion is crazy. Okay. See, I didn’t know it was, so this is the largest active ETF strategy.
[00:27:11] Okay. Maybe I didn’t know that. Wow. In the world. Pretty remarkable. And, but what I did feel as though it had enough positive qualities that people would want to put in their portfolios. If we can give people a portfolio, they would like, or love. Even without the options component, if you then on top of it can actually lower the ball and lower the bait of owning those type of names.
[00:27:32] And then on top of that, you could throw off some income every month. We thought we had a chance of being successful. So I really felt as though when we launched it, it took my 30 plus years of investing in equity and equity options and tweaked it to truly try to find a way to eliminate what I would call some of the traditional headwinds around call override strategies.
[00:27:50] Did I expect it to hit where it is today? No. Did I think it was going to be successful? I did. Hamilton, like we said earlier, this is, uh, [00:28:00] literally the number one ETF that we’ve been asked about over the years. So the fact that it’s number one in its category is, is not too big of a surprise. We really appreciate you taking the time and explaining the story to our listeners.
[00:28:12] So thank you. Thanks for having me. I appreciate it guys. See you at, at, uh, future proof. Oh, hell yeah. I didn’t know you were going to be there. I’m going to be there. I can’t wait. Awesome. We’ll see you there.
[00:28:26] Thanks again to Hamilton and JP Morgan asset management. Remember check our show notes for the links and email us animalsperiospot. gma. com
