Love growth but hate volatility? This solution has you in mind

As popular as growth investing is, it’s not without its criticisms. Whether it's overpaying for companies, getting caught up in hype over substance, or enduring nausea-inducing volatility, growth investing has its foibles.

But, as always, there are countermeasures to such problems that investors can employ to smooth the journey, without giving up the very reason for investing in growth assets in the first place.

The boffins at J.P. Morgan Asset Management have created the JPMorgan Global Equity Premium Income Complex ETF (ASX: JEGA) to do exactly that.

Don’t let the word "income" in the name fool you. This is an equities-based product, so it has a growth focus, but it uses some intelligent tools to hedge against downside in the underlying equities portfolio and derive income return through the use of options.

Whilst that might not wash with the growth investing purists who are happy to white-knuckle it through bouts of volatility, it serves as a powerful alternative for those who aren’t.

I recently chatted with Piera Elisa Grassi, lead portfolio manager for Global and International Research Enhanced Index strategies, and Hamilton Reiner, CIO of the U.S. Core Equity Team, Head of U.S. Equity Derivatives at J.P. Morgan Asset Management, who are co-managers of the ETF, as part of Livewire’s 2025 Growth Series, to get a better sense of what the ETF offers and exactly who it might be suitable for.

Balancing yield and capital growth

At its core, JEGA aims to deliver total return - a combination of capital appreciation and consistent income - while maintaining a smoother investment experience than traditional global equity strategies. It achieves this through a hybrid structure that combines a lower-volatility equity portfolio with a rules-based options overlay that generates monthly income.

The equity component is benchmarked to the MSCI World Minimum Volatility Index, which focuses on global stocks with historically lower price fluctuations. This creates a baseline of reduced equity risk compared to traditional broad-based indices like the MSCI World or S&P 500.

The income comes from a covered call strategy, specifically, the selling of 1-month, out-of-the-money call options on major indices like the S&P 500 and MSCI EAFE. This generates premium income, which is distributed monthly to investors.

However, JEGA’s approach to selling options is unique. Rather than selling 100% of the portfolio’s upside at once (a common limitation of some buy-write strategies), JEGA implements a weekly laddering structure, selling about 25% of the options overlay each week. This creates a more dynamic and flexible payoff profile. It helps retain exposure to rising markets while smoothing returns when markets are choppy or trending sideways.

“The laddered structure helps mitigate the opportunity cost in strong markets by avoiding a complete cap on upside. But it still offers significant income and downside mitigation in volatile periods,” Grassi explained.

This laddering approach means JEGA is constantly refreshing portions of its options exposure, helping it adapt to different volatility environments. In calmer markets, option premiums may be lower, but upside participation is higher. In more volatile periods, premiums increase - boosting income potential and cushioning returns.

A global research engine behind stock selection

The equity portfolio in JEGA draws on the insights of over 80 fundamental equity analysts across J.P. Morgan’s global platform. These analysts contribute to a proprietary stock ranking framework built around three pillars: Economics, Duration, and Governance.

This framework classifies stocks into four tiers: Premium, Quality, Standard, and Challenged. The classifications help portfolio managers construct a diversified, risk-aware equity portfolio focused on durable business models and consistent earnings profiles.

“We’re looking for companies that can deliver through-the-cycle earnings with lower drawdowns during market stress,” said Grassi.

Importantly, JEGA does not try to beat the benchmark through large stock-level bets. Individual stock weights are constrained to ±0.75% of the MSCI World Min Vol benchmark, a key risk control. This ensures the strategy doesn’t deviate too far from its intended volatility profile, while still leveraging J.P. Morgan’s research to add value. JEGA, overall, typically displays a relatively defensive stance. 

Options overlay: Built for resilience

JEGA’s income generation is powered by a sophisticated options overlay, which is implemented at the index level, rather than on individual stocks. This offers several key advantages.

Firstly, it avoids the administrative complexity and trading friction associated with writing and rolling hundreds of single-stock options. Secondly, index-level options allow the fund to retain full exposure to high-conviction names within the equity portfolio, rather than being forced to trim or sell positions simply to generate yield.

“Selling index calls means we don’t need to compromise on our best ideas within the stock portfolio. It gives us more flexibility to hold quality names and let them compound,” Grassi explained.

JEGA typically sells the index options 2% out of the money, meaning there is still room for equity gains before the options begin capping returns. The strategy targets a balance between premium income and market participation - an important distinction from pure yield-maximisation strategies that may sacrifice too much upside.

In addition to the weekly laddering, JEGA also dynamically adjusts its volatility exposure based on market conditions. In times of high volatility, like we have seen recently, the premiums earned from call options tend to rise, which helps increase the monthly income distributed to investors. In low-volatility environments, while premiums are lower, the fund benefits from better upside capture through the staggered call structure.

Where JEGA fits in a portfolio

JEGA is well-suited to investors looking for a smoother equity experience, especially in uncertain or late-cycle environments. It’s a strategy designed to participate in rising markets, while providing downside mitigation and consistent income, which may appeal to both growth and income-oriented investors.

The combination of lower-volatility stocks and a premium-generating overlay makes JEGA a potential complement to both core global equity allocations and income strategies. It may be especially attractive to retirees or near-retirees seeking monthly income from their equity exposure without taking on the full risk of market-cap-weighted indices.

The fund pays monthly distributions, which are funded primarily by the option premiums, and charges a management fee of 0.40% p.a. Importantly, capital gains are not required to fund income, which can help preserve long-term growth potential.

“Many income-oriented products dip into capital to maintain distributions. JEGA is different—its yield is largely driven by the options strategy, allowing the equity component to grow over time”, says Reiner.

The strategy is actively managed, giving it the ability to adapt to changing market conditions. This sets it apart from passive buy-write ETFs, which often struggle in trending markets or sudden volatility shifts.

JEGA has also received a ‘Highly Recommended’ rating from Lonsec, adding to its credibility for financial advisers and platforms.

The outlook: Staying nimble in shifting markets

Looking ahead, the J.P. Morgan team sees reasons for cautious optimism. Global earnings breadth is improving, with a broader base of companies contributing to market gains. This could support strategies like JEGA that have diversified exposure and don’t rely on a handful of mega-cap stocks.

“We’re seeing signs that markets are moving beyond narrow leadership, which plays well into our diversified approach,” said Grassi.

At the same time, the global macro outlook remains mixed, with persistent inflation, rate uncertainty, and geopolitical risks all contributing to elevated volatility. In this environment, strategies that prioritise downside resilience while still participating in market growth may offer an attractive balance.

“JEGA is designed to work across different regimes - it doesn’t require strong market tailwinds to add value. Whether markets grind higher or remain range-bound, the structure allows us to deliver meaningful income and preserve capital”, Reiner noted.

Final thoughts

JEGA brings a differentiated approach to global equity investing - one that blends active research, disciplined risk management, and defensive income generation. It sits in the sweet spot between growth and income, offering a potential solution for investors who want to remain in equities but are seeking a less volatile ride, whilst still participating in growth upside.

For investors looking to balance participation with protection, and growth with guardrails, JEGA is a compelling option worth considering.