The JPMorgan Hedged Income ETF Portfolio

U.S. equity valuations right now are undeniably stretched. The Shiller P/E ratio sits around 40.08, more than double its historical mean of 17.29 and median of 16.06. For context, it’s approaching the all-time peak of 44.19 set during the dot-com bubble in December 1999.

The Buffett Indicator tells a similar story. With the total U.S. stock market valued at roughly $65.47 trillion against an annualized GDP of $30.15 trillion, the market cap-to-GDP ratio sits near 217%, a level that has historically signaled limited long-term returns.

Before 2022, the standard “risk-off” move was to pivot toward high-quality fixed income. But that playbook stopped working once long-term rates reversed their three-decade slide. The correlation between stocks and bonds broke down, leaving traditional 60/40 portfolios less effective as a hedge.

In this environment, I prefer option-based strategies that can actively manage downside risk while maintaining income potential. JPMorgan Asset Management has two such active ETFs, both run by veteran manager Hamilton Reiner, who’s built an impressive record in this space.

Here’s how these two ETFs work, and how a 50/50 mix of them would have stacked up historically against a classic 60/40 portfolio of the total U.S. stock market and aggregate bonds.

JPMorgan Hedged Equity Laddered Overlay ETF (HELO)

HELO is essentially JPMorgan’s long-running Hedged Equity Fund (JHEQX) repackaged into an ETF—same management team, same strategy, just without the $1 million minimum.

It offers investors the same institutional-grade approach in a far more accessible wrapper, with a slightly lower 0.50% expense ratio compared to the mutual fund’s 0.57%.

The ETF starts with a straightforward S&P 500 equity portfolio and layers on a laddered protective put spread. That means buying put options about 5% below the market while selling puts 20% below.

The intent is to create a “soft landing zone” for moderate corrections: you’ll still absorb the first 5% of downside and anything beyond 20%, but losses in between are largely cushioned.

Because this hedge still costs money, HELO offsets that expense fully by selling covered calls (typically 3% to 6% above current market levels) to generate additional income. That caps your upside a bit, but in return you get a smoother ride during selloffs.

In short, HELO isn’t built for shooting the lights out. It’s designed for investors who care more about staying invested with lower volatility and better risk-adjusted returns. It’s transparent, rules-based, and easy to understand: no complicated buffers or exotic resets, just disciplined hedging at a reasonable cost.

JPMorgan Equity Premium Income ETF (JEPI)

JEPI is one of the most successful actively managed ETFs. At a 0.35% expense ratio, it’s not the cheapest, but it’s exceptional value considering what you get: an actively managed, lower-volatility equity portfolio paired with a smart options overlay.

The stock sleeve focuses on defensive large caps while avoiding the concentration risk that comes from chasing the S&P 500’s top names. The problem with low-volatility stocks, of course, is that they don’t throw off much premium when you sell covered calls.

To fix this, JEPI allocates to equity-linked notes (ELNs), which replicate the payoff of selling one-month, out-of-the-money covered calls on the S&P 500. This setup lets JEPI earn richer premiums tied to the broader market’s volatility without owning every stock in the index.

The trade-off is that ELNs come with counterparty risk: they’re issued by major banks, not cleared through an exchange. JPMorgan mitigates this by capping ELN exposure at 15% of assets and spreading that exposure across multiple issuers, but the risk is worth noting.

JEPI currently yields around 8.35%, but income isn’t consistent month to month. Because the options premiums depend on volatility, lower market turbulence means smaller payouts. Moreover, the distributions are mostly taxed as ordinary income due to the use of ELNs, making JEPI better suited for tax-sheltered accounts like an RRSP or Roth IRA.

Still, for investors who want a smoother equity ride and a higher-than-average yield, JEPI remains one of the most balanced and well-constructed income ETFs on the market. It combines defensive stock selection with an options overlay that monetizes volatility, giving you the benefits of both stability and income potential.

Putting it together

From May 2020 through October 2025, a 50/50 mix of HELO (simulated via JHEQX) and JEPI managed to edge out a traditional 60/40 split between the total U.S. stock market and aggregate bonds. The CAGR came in at 10.91% versus 10.58% for the 60/40.

That might not sound like much, but it’s meaningful when paired with better downside protection. Maximum drawdown was only -13.48% for the JPM Hedged Income Portfolio compared to -21.53% for the 60/40 allocation.

Volatility was also lower at 9.44% versus 11.20%, which pushed the Sharpe ratio up to 0.85 and the Sortino ratio to 1.19, compared to 0.70 and 1.00, respectively, for the 60/40. The Calmar ratio, which measures returns per unit of drawdown, almost doubled (0.81 vs. 0.49).

The beta of 0.50 confirms that the JPM blend only captured about half the market’s risk while still matching (and slightly beating) long-term returns from the 60/40 strategy. That’s exactly what you want from a hedged income strategy.

Looking at the second chart, you can see how those numbers translated in practice. During the 2022–2023 selloff, the JPM Hedged Income Portfolio’s drawdown barely grazed -13%, while the 60/40 portfolio sank past -20%. It consistently recovered faster too.

In short, the data backs up the story: combining HELO and JEPI meaningfully reduces volatility and shortens drawdown depth and recovery time without giving up returns. For investors who want income with a defensive posture, I think that’s a trade-off worth making.