In recent articles on Seeking Alpha, the focus has been on how to maintain exposure to big tech in your portfolio while minimizing risks. Strategies such as buying protection on popular tech names, diversifying with index funds, and avoiding leveraged bets have been recommended to hedge against potential risks.
Artificial intelligence (AI) has been a major theme in the market, with top AI stocks seeing significant gains. However, with the NASDAQ-100 trading at 32 times earnings, concerns about valuation have arisen. The JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) offers a way to participate in NASDAQ-100 returns with less volatility through covered call writing.
Covered call writing is a strategy that can enhance yield and manage risk, particularly in overheated markets. JEPQ’s managers use significantly out-of-the-money covered calls to generate a trailing yield of 8.83% and deliver better total returns than price returns alone.
When considering the current market environment and the high valuations of tech stocks, a covered call strategy like JEPQ’s can provide long exposure with a buffer against downside risks and additional income. The fund’s portfolio includes top tech stocks like Microsoft, NVIDIA, Apple, Google, and Amazon, along with equity-linked notes (ELNs) that introduce counterparty risk.
While the growth catalysts for these tech stocks are promising, their high valuations require continued growth to justify investment. JEPQ’s characteristics, including a management fee of 0.35%, a discount to net asset value, and a diversified portfolio of 97 assets, make it a reasonable choice for defensive investors looking to hedge their AI investments.