Meet the ETF that invested heavily in Nvidia and – believe it or not – offers a whopping 8% yield

Nvidia(NASDAQ: NVDA) is a dividend stock, but not one that will appeal to many income investors. The chipmaker’s forward dividend yield is a paltry 0.029%.

Is there a way to own Nvidia stock and earn exceptional income? Actually, yes. meet exchange-traded fund (ETF) which is heavily invested in Nvidia and – believe it or not – offers a whopping 8% yield.

Nvidia and others

I won’t keep you in suspense. The ETF I’m referring to is JPMorgan Equity Premium Income ETF(NYSEMKT: JEPI). JPMorgan Chase launched the fund in May 2020 to provide investors with monthly distributions, exposure to equity markets and relatively low volatility.

This ETF is a really big investment in Nvidia. At the moment, stocks are the second largest, but they are not inferior Trane technologies for first place

The JPMorgan Equity Premium Income ETF holds a total of 133 stocks. Its other major holdings include Progressive, Southern Company, Purpose of the platform, MasterCardand Amazon. Almost 15% of the portfolio is invested in information technology stocks. The fund also owns stocks representing 11+ others sectors.

Unlike many ETFs, this one does not seek to track the performance of an index. Its portfolio is built on what JPMorgan Chase calls “a time-tested, bottom-up fundamental research process with stock selection based on our own risk-adjusted stock rankings.”

This stock selection process worked quite well. Since its inception, the JPMorgan Equity Premium Income ETF has delivered an average annual total return of about 13.4%.

About that super high yield

You might be wondering how an ETF can pay such a juicy income. After all, most of the top holdings mentioned don’t offer attractive dividend yields. Amazon pays no dividends at all. The only exception is the Southern Company, but its forward dividend yield 3.06% is well below the JPMorgan Equity Premium Income ETF’s 30-day Securities and Exchange Commission (SEC) yield of 8%.

There is a simple answer: derivatives. ETF writes without money call parameters on S&P 500 for income. These options give the buyer the right (but not the obligation) to buy the S&P 500 at a price higher than the current price. This approach allows the JPMorgan Equity Premium Income ETF to easily outperform the S&P 500 ETF, US Treasuries or most global real estate investment trusts (REITs).

Morningstar awarded the JPMorgan Equity Premium Income ETF five stars in the category of income derivatives. This is the highest possible rating.

ETFs, of course expense ratio 0.35% does not reflect extremely low costs. However, it is important to note that the 30-day SEC yield of 8% after all expenses

These costs include the fees of two exceptional ETF portfolio managers. Hamilton Reiner has 37 years in the financial industry, 15 of which have been with JPMorgan Chase. Raffaele Zingone has worked in the industry for 33 years, all of them with JPMorgan Chase. Both have managed the JPMorgan Equity Premium Income ETF since its inception.

Inevitable caveats

Now for the inevitable caveats necessary for any discussion of this ETF. Most importantly, the fund may not perform as well in the future as it has in the past. The stock market has risen sharply over the past four years, a relatively short period that is not necessarily representative of realistic long-term returns.

Likewise, the impressive income you can get now with the JPMorgan Equity Premium Income ETF may not always be as high. Returns have been significantly lower at times since the ETF’s launch.

Also, if you want to own a stake in Nvidia through an ETF, there’s no guarantee that this JPMorgan fund will always be invested in the chip maker. The ETF’s turnover ratio (the percentage of the fund’s shares that are sold and replaced by new shares) for the 12 months ended June 30, 2024 was 174%.

However, the JPMorgan Equity Premium Income ETF may appeal to many investors. If you want have a position at Nvidia and enjoy sky-high yields, it may be the best alternative.

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John McKee, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randy Zuckerberg, former Facebook CMO and spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. Keith Speights has positions in Amazon, Mastercard and Meta Platforms. The Motley Fool has positions in and recommends Amazon, JPMorgan Chase, Mastercard, Meta Platforms, Nvidia and Progressive. The Motley Fool recommends long $370 January 2025 Mastercard calls and short $380 January 2025 Mastercard calls. A motley fool has a disclosure policy.