Direxion Files to Leverage Popular JEPI, JEPQ ETFs

ETFs add risk to funds providing protection. Also, Hartford files to launch systematic fund.

Wealth Management Editor
Reviewed by: etf.com Staff
Edited by: Ron Day

Direxion, which manages $39.7 billion in 83 ETFs, has filed to launch a pair of funds that aim to beat the performances of JPMorgan & Co's popular JEPI and JEPQ, and possibly test the limits of risk-averse investors. 

Direxion filed Thursday to launch the Direxion Enhanced S&P Equity Income ETF and the Direxion Enhanced Qs Equity Income ETF, which offer 1.5 times leverage of JPMorgan’s covered-call strategies. Those popular funds, the JPMorgan Equity Premium Income ETF (JEPI) and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) offer downside protection in exchange for a cap on the upside.

The Direxion filings turn risk aversion upside down, offering souped-up performance on strategies that have become wildly popular among investors seeking a smoother ride. Leveraged ETFs are popular, with $94.4 billion invested across 179 U.S.-listed funds, according to etf.com data.

“It’s getting kind of Frankensteinish out there,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. He said the Direxion funds, if approved by the Securities and Exchange Commission, might be on the market in about 75 days.

Leveraging Covered Call Strategies

The protection of covered-call strategies gained appeal amid the cloud of a potential recession and other economic unrest. Lately the resilience of the bull market for stocks has highlighted the reality of the performance caps: JEPI, which tracks the S&P 500 Index, gained 9.8% last year, while the SPDR S&P 500 ETF Trust (SPY) rose 26%.

JEPQ, which tracks the Nasdaq-100 Index, gained 36% last year, while the Invesco QQQ Trust (QQQ), which tracks the index without a performance cap, gained 55%.

“The problem with covered-call strategies is that in really good markets you miss out on a good chunk of the upside,” Balchunas said. “Direxion is trying to correct that one issue, but at some point it might make more sense to just by the index.”

Balchunas compared the idea of adding leverage to a strategy that is supposed to be “serene” to the popular practice of adding Red Bull energy drinks to alcoholic cocktails.

“I guess 1.5 times leverage is just enough without getting crazy,” he said. “That’s sort of the world we’re in now; adding leverage to something that is supposed to be serene.”

Hartford Adds to Systematic Lineup

In launch news, Hartford Funds has bulked up its systematic ETF business with this week’s launch of the Hartford Multifactor International Small Company ETF (ROIS).

This latest product launch follows the introduction of the Hartford US Value ETF (VMAX) and the Hartford US Quality Growth ETF (HQGO) in December.

Hartford introduced its first systematic ETF in 2015.

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.

Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.

Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.