Nasdaq 100 index raging bull will be epic: QQQ vs JEPQ ETF

The Nasdaq 100 index is in a major bull run and many analysts believe that it has more room to run. The index, which tracks the biggest technology companies, surged to $174 on Tuesday, meaning that it has surged by over 62% from its lowest point in 2022 and by 150% from its pandemic lows. 

It has been one of the best-performing US indices in the past decades. For example, a person who invested $10,000 in QQQ in 2014 and reinvested its dividends, would now have over $32,000. 

There are signs that the ongoing bull run has more room to run for a few reasons. First, there are signs that technology investments are rising. Last week, I wrote that IT contractors like Infosys, Wipro, and Accenture stocks surged after reporting strong results. 

These companies are often seen as a barometer for tech spending because they are the ones that implement new technologies like AI and IoT.

Second, there are signs that all types of tech companies are set to report strong results. Netflix reported strong revenue growth as the number of customers in its platform jumped. Analysts expect other big-tech companies like Meta Platforms and Microsoft will deliver impressive numbers. Most importantly, other large-cap companies like CrowdStrike, Salesforce, and PayPal will likely do well. 

Third, the Federal Reserve will likely start cutting interest rates later this year as inflation subsides. The Fed Rate Monitor Tool shows has a 99% chance that the Fed will start cutting interest rates in June this year. 

History shows that the Nasdaq 100 index does well when the Fed is relatively dovish and when inflation is stable. For example, the pre-pandemic bull run happened when inflation remained constantly below 2%.

Nasdaq 100 vs JEPQ chart

If this raging bull continues, there is a likelihood that Invesco QQQ and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) will do well. The question is, therefore, which is the best ETF to invest in in such a situation.

Invesco QQQ tracks all companies in the Nasdaq 100 index. JEPQ also invests in these companies but uses a covered call strategy that generates monthly earnings. As a result, JEPQ can generate a dividend yield of over 9%.

It does this by buying Nasdaq 100 companies and then selling call options of the index. By selling calls, the fund automatically receives a premium payment, which it can then distribute to its investors. 

The concept is relatively simple. If the index drops, the call option becomes worthless since the counterparty can buy it directly in the market for a cheaper price. It still retains some income in the form of the premium.  If it rises, the fund benefits from both the price movement and the premium. 

The challenge of investing in JEPQ during a bull run is that more gains could see it miss more upside, especially if the Nasdaq 100 index forms a god candle.Therefore, as I wrote in my article on JEPI, it makes sense to invest in generic or old-school ETFs. In addition to having a lower expense ratio (0.35% vs 0.20%), they also outperform these covered call ETFs over time.

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