Animal Spirits Podcast - Talk Your Book: Income Outcome Investing

Episode Date: July 1, 2024

On today's show, Ben Carlson and Michael Batnick are joined by Hamilton Reiner, Managing Director, Portfolio Manager, and Head of US Equity Derivatives at JPM Asset Management to discuss active strategies combined with option overlays, why limiting outcomes improves investor experience, how J.P. Morgan constructs option strategies, how volatility affects yield for income strategies, and much more! Find complete show notes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Past performance is not indicative of future results. The material discussed has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed.   Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by JPMorgan Asset Management. Go to JPMorganasset Management.com to check out their whole suite of outcome-based strategies. JepPee, the largest active ETF there is, JepQ. Also, hello, all these different strategies and more at JPMorgan Ascent Management.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by my friends. Michael and Ben are solely their own opinion and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, we started talking about option strategies after the 2022 bear market, specifically covered call strategies.

They're just, they went bonkers because a lot of those strategies outperformed during 2022 in the bear market. And the big one that we always got questions on, I remember someone actually emailed us a couple times and said, why shouldn't I put 100% of my portfolio into Jepi? What did this question start? 20-22-ish, I'd say, in the bear market. But that's when you saw a huge- Oh, right, that was the big year of our performance. Yes, because it was a huge year of our performance.

And you saw the big distribution. yield in these strategies and it did better in a bare market. And JEPI was the first fund like this that got some, I'd say some brand cachet, like a lot of people knew it by name. Yeah, that's true. Right. So we've talked to Hamilton Rainer before from JPMorgan. And on today's show, we talked about they have a host of other products like this. So JEPI and then they have JEPQ, which is a NASDAQ based cover call strategy. And Hello is more of a hedged equity strategy. We don't get everything right, but I think we're pretty good at determining what's going to catch on, what would investors be interested in it. And there was apparent early on to us that this type of strategy where investors can narrow the range of outcomes was going to be a hit. Honestly, I don't think I don't know that I thought it would be this big this quickly. It's a $120 billion category, but people want it. especially when you consider the oldest generation that's retiring that controls all the wealth,

these kind of strategies make even more sense for them. This will be a trillion-dollar category by 20-something, by 20-something. Mark my words. Okay. All right. You can hold me to that. All right. You have 76 more years or something.

That's conviction. So on today's show, we speak with Hamilton, Ryan. Hamilton is a manager, director, portfolio manager, and head of U.S. equity derivatives at J.P. Morgan Ascent Management. So, with no further ado, hope you enjoy this conversation. Hamilton, welcome back to the show. Thanks for having me. Looking forward to it. There was an article over the weekend, talk, the headline was,

these hot new funds are boomer candy for retirees. And this new fund, or this hot new fund that they're talking about, the category is strategies that use option overlays, of which J.P. Morgan is the largest. there, credit to you. It's a $120 billion market, according to FACSET. And I suspect it's going to get a lot bigger. So the premise behind these strategies is what? As I said, thank you for having me. When I think about these strategies, the premise is actually delivering outcomes. Now, using options for outcomes is nothing new. A hundred years ago, farmers needed to find a way to hedge their crops going to the last two weeks of the harvesting season.

They were afraid that drought or insects or something else bad would happen. And that's kind of where these hedged equity strategies or buffered strategies come out. And then you have where farmers didn't really know what to plant. So they said, somebody said, I would pay you X number of dollars in four months for whatever you harvest. And so they basically said, I'm going to take the bird in the hand of that price today and potentially forego some of the upside. And so this idea of outcomes is now that.

new, but that's kind of what the outcomes are here. Either you're looking to hedge your portfolio and get, you know, and from an equity perspective, or you're trying to seek income in another source beyond traditional fixed income. How do you think about setting expectations for these strategies in times like today where you have a bull market where very little volatility, things seem to be going up in a very stairstep like fashion? And for that kind of environment, these strategies, by definition, almost, are going to underperform. So how do you set that expectation? Sure. So it's a great question, Ben. When I think about managing the expectations, that's really important. So these strategies in many cases have less volatility and less beta in the marketplace.

So in my mind, to think about them, you have to think about them in more of a risk-adjusted way or sharp ratio way. And so if I were to say that to you that fixed income is underperforming stocks, you'd say, of course it is. It's not meant to outperform. So when you think about a strategy like a JEP, you're a JEPQ, which have somewhere between 25 to 35% less volatility and baited in their respective benchmarks, you would expect them to outperform on a sharp ratio perspective, but not necessarily on a total return perspective. And so when you think about that allocation, portfolio construction is never easy. But today, it's even harder than ever before.

Markets at all time highs, bonds are acting great from an income perspective, not necessarily acting defensively when you need him to act defensively. So just think about these strategies as being another way of adding return in a risk-defficient manner to an overall portfolio. Hamilton, I might have misheard you, but I want to give you the opportunity to say it again unless I did mishear. You said that they're going to underperform on a sharp but outperform on a total. I think, did you mean the other way or did I miss hear you?

I'm not sure what you heard, Michael, but I would say is they were supposed to outperform on a sharp, but on a total return perspective, you know, in many circumstances, they're not going to outperform a beta one product. Sure. Okay. So I love the idea of outcomes as a category. And I might have told this. I'm getting a sense of deja vu.

So I feel like I probably had this conversation, maybe with you or maybe with somebody else. But I remember in 2012, somebody came in to talk to us about one of the junk bond ETFs. And we said, how are clients using this? And they said, we sort of laughed. They're like, is this chicken equity? like clients want to get some sort of beta to the market, but they don't really want the full smoke. And the way that they did that was with junk bonds, not really a great substitute

for stocks. With this, this is, I don't say chicken equity pejoratively. There are people that want to be exposed to the stock market, but just don't want or frankly need all of the smoke. So I think, I'm not sure if I use the word chicken equity, but I would. would say something in lines of, you know, a more conservative equity allocation. And here is, you know, basically there's multiple types of clients today. The first client, guys, is the client that actually started the year with exactly the right amount of equities. And we're halfway through the year. And can you believe it? Stocks are up nearly 15%. So it comes to the end of this month, at the end of the second quarter, you're thinking about rebalancing. What do you buy

as you rebalance? Well, how about you peel back some of your equity appreciation and you put it into one of these outcome-oriented strategies. Or you started the year saying, markets had a great year last year. They were of 26%. I'm going to buy the dip. Well, guess what? We're now 15% higher.

You're going to be a big darn dip to get back into the market. But at some point, you're going to start suffering from FOMO, and these strategies will help you put that money to work instead of waiting for the pullback. And so best conservative approach to equities, either to take some chips off the table, and I guess it's unique using the word chips given in Vividia, or actually putting some more equities into your portfolio because you're underweight

equities because you can't believe that we're higher another year or another half year, if you will. How should people think about the extent to which they will give up upside? So, for example, as of Monday, June 24th, I'm looking at the S&P 500 total return is up just a shade over 15%. And this is up 6.6% give or take. Now, again, I didn't think the S&P would be up 15% this year. And I would guess that investors in this probably wouldn't be too upset with a nearly

7% return halfway through the year. That being said, there is a big gap between the S&P and JEPI. So how should investors think about going into this? And I guess probably the answer is it depends on the path of the market. But just generally speaking, how do you talk to investors about the upside that they're going to give up in a bull market by definition? So there's a couple ways of thinking about it, Michael. When we talk about my strategies, it first and foremost always starts with the underlying

equity portfolio. And so with JEPI, we have a more defensive portfolio, stocks that are more steady eddy earners, more blue chip names. And as such, it's a higher quality portfolio and stocks that have more predictable earnings. Well, stocks that predictable earnings this year have not been rewarded yet. if the market continues to rally, I would expect the rally to expand to beyond the magnificent seven or fabulous four or even just technology and communication services. And so when we think about that aspect, yes, you're right. JEPI year to date, I believe is similar to the number

you just said. It's about just over 6% with the market up, you know, just over 14. But at the same time, we have JEPQ, which is the fastest growing active ETF in the industry, which is nearly 15% because the underlying loan portfolio is a lot growth year and a lot techier than the S&P because it's benchmarked the NASDAQ 100. And then just to highlight a strategy like Hello, which is that hedged approach, has about half the volatility and half the bay of the S&P 500 and is up nearly 10.5%. So imagine having half a half. the ball and half the beta and being up 10.5% relative to 15, about two thirds of the market return. So it all starts with what type of stocks you want to own. We kind of think Jepi right now,

that higher quality portfolio, these names that are more steady Eddie, blue chip names, which have really not gone up that much year to date. These stocks are getting cheaper and cheaper by the day because their earnings continue to drift higher. So we're kind of constructive on that approach as well. And Hamilton, in fairness to you, this portfolio, which are I want to get into. This portfolio is not the S&P 500 at all. And if you compare this, and I know that this isn't necessarily the right comparison, but just in fairness to JEPI, if you look at the Dow, for example, the Dow is only up 5.5%. Right. So the Dow is only up 5.5%. Jepi's up 6.6. Again, maybe not an Apple's comparison. But we know, we all know what's driving the S&P year to date, which is, you know,

Nvidia and the giant. So what goes into the stock selection in these portfolios? Sure. So everything we do starts with a bottoms up approach, fundamentally driven. In a strategy like JEPI, we're going to look for those stocks that are attractively priced and in addition have less volatility and more predictable earnings. So as you can imagine, the stocks that we own are going to be higher in quality. But very important, they do not need to pay a dividend. Amazon's a top 10 holding. Why? Because it's a great company. And if and when the market, market sells off, we would expect it to hang in better. We also own meta and Google. Now, the fact is, is that in order to ensure that we have a well-diversified portfolio, we're in a cap every name at 2%, and we're in a cap every sector at 17.5%. Because if all you were looking for were high-quality names, you'd probably be just in staples and utilities. And so we want to make sure we're well-diversified across sectors and across names. With a strategy like JEPQ, we're going to actually look for our favorite names within the NASDAQ 100 and actually try to

make sure that we're close to the benchmark, plus maximize a couple hundred base points at the name or the sector level. And then with Hello, it's going to look a lot more like the S&P 500. And what's very unique about Hello is when you look at the entire landscape of buffered strategies or hedge strategies, we're one of the few, if not the only one that has an active underlying portfolio. And Active makes a difference. So can you do a little quick comparison? between that hello option strategy versus the JEPQ and JEPI? Sure. So hello is one of those, what was the words you used, Michael, chicken equity?

So hello is about- Those are my words. This was the wholesaler's words. Gotcha. So I will attribute it to somebody else, not to you. Think about hello as being equities with guardrails. On a very persistent basis, we will have a downside hedge always in place. From down five to down 20, that's three months in duration.

and we're going to ladder and stagger it. So think about one third of our hedges are going to be January, February, March, March, and April, and another third are going to be February, March, and April, May. And what that does is it gives people staying power. When things were going crazy with the missiles flying across the mid-east, people should not be concerned about their stocks. They need to worry about the next 10, 20, or 30 years, not the next 10, 20, or 30 days. And so hello is about helping people get invested, but more importantly, stay invested. A bona fide hedge. A strategy like JEPI is a more conservative, higher quality, lower price volatility and earnings variability, long portfolio that's designed to give our investors through a cycle above average level of income. Let's call it seven to nine, but without cresper risk and without duration risk. So imagine if you can get seven to nine percent income through a cycle, but owning those high quality names.

that you know and love, Visa, MasterCard, Microsoft, Train, you know, that's kind of what that strategy does. With Jeff Q, it's about putting three phrases together that never get mentioned the same sentence. When was the last time, guys, you heard growth in tech, less volatility, and income mentioned in the same sentence. Just now. Exactly. You're welcome. This strategy is going to have about 25% less volatility in beta than NASDAQ 100 through a cycle and is expected to recycle to have 9 to 11% distributive income. So it really acts as a nice diversifier for other people. If you're an income-oriented client, where else can you own growth in tech? If you are a nervous Nelly or Neil, how can you actually own growth in tech but do it with 25% of

volatility and beta? And then to get 9 to 11% to distribute income without credit spread risk and without duration risk is pretty attractive. So, Jeb Q has, the gap between Jeb Q and the Q's is not wide. It's, I don't think it's wide. It's 16.3% for the Q's I'm looking right now and 14.7 for Jeb Q. I'm curious, talk about the methodology between where this income comes from. A lot of times these strategies will sell calls on just the index, but you all do it at the individual holding level.

Can you talk about why and what does it look like? Sure. We actually do it at the index level, Michael. Oh, I apologize. And the reason for that is, oftentimes when you do at the individual name level, you have your winners taken away and you're left with your losers. And then you start rooting against your winners saying, I hope they don't go up too much. How crazy is that to root against your stocks that you hand-selected to be in your portfolio?

But when you do at the index level, you reduce the beta of your strategy, but you never have your stocks taken away from you. And so what we do is we sell options that are just over a month in duration, but to ensure that we're never ever fully kept out, we ladder and stagger our options such that we do about 20% each and every week. And they're always out of the money. Michael, many strategies say, we just want income. And there's other strategies that say we just want upside. We want a little bit of both. We want to have some income and some upside. So we always sell out the money options. In addition, with Jet Pugh, the underlying long portfolio is active.

As I said, very few strategies in this space are active. And that long portfolio has had over 170 base points of alpha year to date. It's pretty impressive. The whole thing with higher yields comes with higher risk, get that caveat out of the way. But I assume that JEPQ has a higher distribution yield than JEPI most of the time. Can you talk about that and how that differs? Sure. So when I think about the approach that we take in Jepi, the long portfolio is only

going to have about a 0.8 beta through a cycle. So we only do options about 80%. And those options also are done at the index level and they're always out of the money. And on JEPQ, because the long portfolio is going to look a lot more like the NASDAQ 100, we do options on 100% of the portfolio. But when you think about the underlying indices, the VIX right now is about 13.3. And the VIX of NASDAQ, yes, there is a VIX of NASDAX, the VX. is about 17.2. And so the underlying assets or indices, the NASDAQ is a little bit more volatile. And it makes sense.

It's a little growth year and a little tech year. And as such, the income associated with Jet Q tends to be higher than JEPI almost all the time, Ben. How much does the income fluctuate? Because there's a volatility is a huge component of options, prices. and right now there is just no volatility out there. So how much does that income fluctuate? So it can fluctuate a little bit. As I said, through a cycle,

we would expect JEPQ's income to be about 9 to 11 and JEPI used to be about 7 to 9. Our current SEC yield for JEPI, I think, is about 7 and a half. And our current SEC yield for JEPQ is, I think, right around 10. And so I would say it can fluctuate. If you go back to 2020, the income was much higher. If you go back to 2022, the income was much higher. But the other thing that we do, that's important, Michael, is when volatility is elevated,

we're going to do two things. The first thing is we're going to give you more income. Number two, we're going to sell an option that's farther out of the money. So that gives me the ability to balance the toll return to giving you a combination of three things. Some dividends, some options premium, and then some of the ups. side. It's important that you want as many different ways of winning. Because think about where we are today. There's three things the market could do, and I'm going to oversimplify it. It can go up, it can go down, or it could be range-bound. If the market continues to go up, do we think there's

another 55% in the NASDAQ like we saw last year? Probably not. It's probably going to be more of a drift higher if we see it. And a strategy like Jeff Q should do just fine. If the market goes down, the options premium plus the stock selection should help us eat less of the downside, like we we did in 2022. Or what if the market's rangebound, right? Markets tend to be range bound going into an election. You're still going to get the dividends, the options, premium. And that's the same thing for both JEPI and JEPQ.

What I like about these strategies is there's multiple ways of winning. If you buy stocks, there's only one way of winning. They go up. But when you have a strategy that can actually win by losing less, the market goes down in most market circumstances, making money in a range amount of market, or even participating in a fair amount of the upside and upward in the biased market, I kind of like that as a compliment to the rest of your portfolio construction. Speaking of portfolio construction, how are you seeing advisors and uses for their clients?

Let's just say somebody's 6 to 40. Are they likely to do 55, 35, 10? Or are they taking this more from bonds or more from equities? Or are they splitting the difference like I mentioned? So the way I like to think about it, Michael, is if you're starting with your perfect portfolio allocation, which means you're doing two things. One, you're managing to the maximum return you can get for how much risk your clients are allowing you to take. So I want to make sure we stay consistent with that.

So if JEPI has a 0.65 bid to the market, in that case, I would say, you know, you would take 65% from stocks and 35% from fixed income. And with JEPQ, it would be a little bit more, be more like 75% or so from equies and 25% from fixed income. With hello, the hedge strategy, it would be actually, just as you said, you know, equal amount from stocks and bonds. And when you think about these strategies, there's a couple uniform things across my entire platform. Number one, I don't use leverage and I don't believe in leverage. Number two, our goal is to not use market timing, have a very disciplined approach. And so these strategies actually fit as a complement to the rest of your portfolio. them. But you asked something earlier, once again, I'll attribute it to some other wholesaler

and not to you. But for that investor, that's not perfect. That's not 60, 40. That is 40% stocks and it's supposed to be 50 or 60. In that case, I would actually take it from the cash that's on the sidelines because the fact is cash is not trash, but too much of a good thing is not a good thing unless it's chocolate. So let's bring that to life for a second. If you had $200,000 today extra in cash, over the next 32 years, if you can get 4.5% on that cash, that 200 grand becomes 800 grand, which isn't too shabby. But that same 200 grand, if you get average equity market returns of 9% becomes $3.2 million. That's a $2.4 million swing. on just $200,000.

So helping people allocate some of that money that's on the sideline or be more efficient in their allocation from a portfolio construction risk profile, I think it was one of the most important things that the three of us could do. So to Michael's point about chicken equity, I'm sorry we've got that phrase to stick today. If someone is worried about reinvestment risk in cash, they're saying, hey, I'm earning 5% in my money market or CDs or whatever it is, online savings account T-bills. I want to take some risk, but geez, I'm worried that the same thing. stock market is going to fall or it's going to be volatile because it seems to be going straight up

for the past 18 months. That's kind of how you would say, well, this is a, it's more than a tow back in the water because there's still some risk in these strategies, obviously, but it's a, it's a strategy where you're getting some equity upside, but it's also has these other components to it. Absolutely. And if you think about if the market would go down, not that history repeats or rhymes, but in 2022, Jepi was only down three and a half with the market down 18. And so if we could find a way to help people not worry about what's going on in social media or on business television where they're worried about the next 36 or 90 days and really look out to the time of investing that's more relevant to their ability to retire, these type of

strategies really help in a more defensive, let's use the word defensive way, own some more risk, but with less volatility and less beta bent. So 2022, I'm guessing a lot of your alpha came from not just the option income, but from stock selection. Absolutely. Absolutely. Being underweight the, you know, the largest names helped, being structurally underweight tech helped. And so it wasn't just the options premium. It was also stock selection, which brings us to a good point, Michael, when people say to me, JEPI or JEP Q from an income oriented perspective, which one's my favorite? I often say I love all my children, and I do.

it's really about what type of stocks the best complement your holdings. If you have enough tech between your S&P and your growth strategies, please buy JEPI. It's a nice diversifier. If you don't have enough growth in tech because you just can't get your arms around it,

then please buy JEPQ. But if you were to combine JEPI and JEPQ, 40% in JEPQ, and 60% in JEPI, it looks a lot like the S&P 500 from a sector allocation. So we always start with what type of stocks do you want to own?

You want to have something more defensive higher quality than by JEPI, something growthier and techier, JEPQ. Or if you combine the two of them, it could look a lot like the S&P 500. So I imagine the, it's easy to understand that JEPI would have much lower valuations than JEPQ, right? So for someone who's, so someone who's worried about valuations are out of control on the NASAC or the S&P or these big growth stocks. JEPI is kind of the, an answer for that. Like the higher quality companies have gotten left in the dust a little bit when it comes to valuations. Absolutely. And you just can't forget, quality names tend to go out of favor very rarely. So let's not lose side of the fact that there are

493 other names in the index and many of them have good earnings, good franchises, and should not be ignored. I think investing is always about balance. You shouldn't be just in one, you know, one type of strategy or one side of the boat, if you will. 2020 was an unusual year. I'm going to say you could disagree for Jepi in the sense that it was a bare market where the biggest names were the biggest lunars. Biggest losers, excuse me. So tilting away from those names was a huge buffer for you in 2022. The reason why I say that is because, in my opinion, I don't necessarily view this as a true hedge because in the event of an average bear market, you're going to lose what the market does, minus maybe this a little bit of alpha on the stock selection, but it's going to be

offset by some of the income growth. So I guess what I'm saying is in a normal year, if a bare market's down 30%, I'm not, I wouldn't guess that JEPI would be down 5% again. So it's a leading question to say, I don't if you as a hedge, you can disagree. What are some of the most common misconceptions that you do hear from investors that might not get what they thought they were signing up for? Sure. So a couple things. Number one, I agree it's not a hedge. But the idea is, is how do you construct a portfolio that will lose less and hang in better if when the market sells off? If you want a hedge, say hello to your equities. Don't say goodbye. Hello. that is a bona fide hedge where we're buying s and p 500 put spreads by doing that you actually

know that you are hedging a market sell up but when you think about portfolio construction higher quality names tend to go down less and i agree 2022 is quite unique but if you have a higher quality portfolio time and time again those type of stocks have hung in better when the market sold off plus the options premium so maybe you're not down three and a half but you're not going to be down the full 20 percent, the market's down 20, Michael. And actually, I don't want to pigeonhole you into picking a number, but what would your ideal upside and downside capture look like in these funds? Sure.

So what's interesting is all three of these strategies have a positive up, down capture, which is quite unique. Most qualified strategies are captive of the upside and eat all the downside. We tend to see anywhere from 500 to 900 basis point to cross all three of these strategies of up, down capture the right way. which is quite unique, Ben, because most call-of-right strategies, and you look at the Morning Star category, have the exact opposite. They're an inverse up-down capture. And just to bring that to life, Michael, we launched Jeff Q on May 4th of 2022. May the fourth be with you. Yes,

I'm a Star Wars geek. Now, throughout that, the rest of the year, from May 4th to the end of the year, the market was down, I think, just under 16%. And we were down just over 11. So it's not just the option is premium. It's also the stock selection. We had 30% less downside than the NASDAQ from inception to the end of 2022, which is a pretty challenging year for the NASDAQ. All right. So let's talk about Hello. One more time. So talk about this product. Just start from the top. What exactly are investors getting when they buy Hello? H. YLO, a good ticker, by the way. Thank you. We would expect through a cycle for them to have over two-thirds marker a turn with about half the volatility in beta. So it's a very efficient way of getting

more equity market exposure. So for example, if you're a very conservative investor, Michael, and you have 20% in equities, theoretically, you could have 40% in a strategy like a low on a risk adjusted basis because if it only has half the ball and half the beta, you theoretically can own more stocks because you're hedged. Hedging is not about being bearish. Hedging is not about expecting or wanting the market to go down. Hedging is about owning stocks, actually owning more stocks and doing a way that you don't lose an ounce of sleep. You're rooting for the market to go up. We always say that the best strategy is one that you could actually stick with. And being able to define your outcome better than you can when you're just owning the S&P. Clearly,

the proof is in the pudding. There is investor demand. As I mentioned earlier in the show, it's a $120 billion category. And it's not, this is not an old category. It's not. It's not. And we were at the forefront over a decade ago of launching hedged equity, a mutual fund that used this hedging approach. And then we were, you know, at the forefront, launching JEPI and at first as a mutual fund in 2018 and then as an ETF in 2020. And yes, the space has gotten crowded. But what I would say is there are a couple things that I think are important. A, you know, it's important for people to know who's managing your money. Many of the people in the space have outsourced the most important part of the investment process. The investments, in many cases, a lot of these strategies are

subadvised and distributors are just actually selling other people's strategies. That's number one. Number two, fees matter. With JEPI and JEPQ, our fees are only 35 basis points. Most of my competitors are well north of that. And then liquidity is also important. Jepi trades over $160 million dollars per day a penny wide right on the NAV, and JEP Q trades over $135 million, a penny wide right in the NAV. So I think, you know, understanding, as you said, and I think Ben said as well, understanding what you're buying, what to expect is never been more important than this outcome-oriented strategies. Have you seen any drop-off in demand for these strategies as the bull market has progressed or not really? So I think one of the things that we've done quite well, Ben, is one of the things

you asked earlier, which is the managing of expectations, I think JEPQ is a top five asset gatherer year to date with nearly $5 billion of assets. And JEPI, yes, it's less than JEPQ, but it's almost like that same store sales number because it's gotten larger. If he didn't own Jepi yet, it's only natural for it to have less growth. But even there, we've seen over $2 billion of net new year to date. And a low is right up there at almost 900 million in total assets. So we are seeing these strategies continue to grow and part of it is what we said earlier. Number one, there's a lot of cash on the sidelines. Number two, fixed income is awesome because you're getting income, but it's not acting as defensive as many of us would like when you put into a portfolio.

And then one of the things is, is people are finding multiple ways of using them. You know, JEPI and JEP Q is not just about income. It's that multiple ways of winning. You know, in an up market, you'll capture a fair amount of it. In a range of market, you're still going to do quite well. And we would expect in a down market to capture less of the downside. Last thing for me, Hamilton, a lot of the returns, depending on the year, will be distributed via income.

So we're not tax accountants, neither are you. But it would make sense all else equal to hold this in a tax sheltered vehicle. Michael, like Frank's Redhot, everything's better with Franks Red Hot, everything's better in a qualified account. So I would agree. But you said something that's very interesting, and that is income. Our strategies have 1099 income. We're one of the few strategies that have bona fide income. And many of your listeners need bona fide income because, you know, they may be in trusts or other things like that. Most of my competitors actually have return of principle in which they're charging you to give you your own money bag and it's not considered income when it comes to folks that are, you know, are of the

accountant way and I'm not one of them. So are you saying that when something has a 90% dividend yield, be asked questions? Ask questions and try to figure out when the reverse splits happening. Hamilton, if people want to learn more about your strategies, where do we send them? JPMorgan Ascentmanagement.com. Awesome. Thank you. Thanks for having me. Appreciate it. See you guys in September of Futureproof. We'll see you there. Okay, thank you again to Hamilton. You can see Hamilton at FutureProof with us. He's attended last year.

He said he promised us he's coming back this year. Check out JPMorgan Asset Management to learn more about all these products. And send us an email Animal Spirits at CompoundNews.com.