Why Equity Income Strategies Like JEPI and SCHD Are Failing to Deliver Long-Term Value

In 2025, equity income strategies-once a cornerstone of diversified portfolios-are struggling to justify their long-term value. The JPMorgan Equity Premium Income ETF (JEPI) and the Schwab U.S. Dividend Equity ETF (SCHD), two prominent vehicles in this space, exemplify the challenges posed by a shifting macroeconomic landscape. Rising inflation, trade policy uncertainty, and the erosion of traditional diversification benefits have undermined their ability to deliver sustainable income and risk-adjusted returns.

A Macro Environment of Uncertainty

The 2025 macroeconomic backdrop is defined by three interlocking forces: persistent inflation, geopolitical trade tensions, and the Federal Reserve's cautious stance on rate cuts. According to J.P. Morgan Research, U.S. trade policy uncertainty, as measured by the Categorical Economic Policy Uncertainty Trade Policy Index, spiked to near 8,000 in 2025-a level not seen since the early 2000s-before stabilizing at elevated levels. Tariffs, intended to protect domestic industries, have instead acted as a drag on growth by front-loading activity in goods-producing sectors, inflating costs, and dampening business sentiment. Meanwhile, sticky inflation has kept the 5y5y inflation swap rate above its 2015–2019 average, complicating income strategies reliant on stable pricing environments.

JEPI: High Yield, Low Resilience

JEPI, an actively managed fund with a 7.33% yield, combines dividend income with options premiums to generate monthly payouts. Its strategy has historically offered limited volatility, with a maximum drawdown of -13.71% and a Sharpe ratio of 0.21 according to Mezzi.com data. However, these metrics mask structural vulnerabilities. JEPI's reliance on an options overlay-a tactic designed to hedge downside risk-has proven less effective in a low-volatility environment. When volatility spikes, as it has in 2025 due to trade wars, the fund's premium-generating capacity may rise, but its upside potential during market rallies is capped.

Moreover, JEPI's dividend sustainability is precarious. While its yield is attractive, the fund's income is subject to market conditions and active management decisions. Data from Mezzi.com notes that JEPI's monthly distributions have declined in recent years, signaling challenges in maintaining consistent payouts. In a macroeconomic environment marked by inflationary pressures and slowing global growth, JEPI's dual-income model-though innovative-struggles to balance resilience with growth.

SCHD: Steady Dividends, But at What Cost?

SCHD, a passive fund focused on dividend-paying equities, offers a more predictable income stream. Its top holdings maintain a weighted average payout ratio of 56%, reflecting strong dividend sustainability. However, its 3.89% yield pales in comparison to JEPI's, and its Sharpe ratio of -0.20 underscores its vulnerability to market downturns. SCHD's maximum drawdown of -33.37% highlights its exposure to broader equity risks, a liability in a world where the traditional stock-bond correlation has weakened.

SCHD's performance over five years-characterized by steady capital appreciation-has been a boon in rising markets. Yet, in 2025, its passive approach has left it exposed to sectors hit hardest by trade policy shifts and inflation. For instance, tariffs have disproportionately impacted manufacturing and real estate, sectors with significant weight in SCHD's portfolio. While its low expense ratio (0.07%) and focus on long-term growth remain strengths, these advantages are eroded in an environment where income-focused investors demand both stability and resilience.

Risk-Adjusted Returns in a New Normal

The core issue for both funds lies in their risk-adjusted returns. JEPI's Sharpe ratio of 0.21, though positive, is modest compared to historical benchmarks, while SCHD's negative Sharpe ratio (-0.20) reflects its inability to compensate investors for volatility. The erosion of diversification benefits-exemplified by the rising correlation between stocks and bonds-has further strained these strategies. In a world where inflation expectations are sticky and trade wars disrupt supply chains, the trade-off between income and risk has become less favorable.

Implications for Investors

For investors seeking long-term value, the struggles of JEPI and SCHD underscore a broader problem: traditional equity income strategies are ill-suited to a macroeconomic environment defined by uncertainty. As J.P. Morgan notes, the 2025 landscape demands a reevaluation of portfolio construction, with greater emphasis on alternative assets, international equities, and duration management. While JEPI's active management and SCHD's dividend focus offer distinct advantages, neither fully addresses the systemic risks posed by inflation, trade policy, and geopolitical instability.

In conclusion, the failure of these strategies to deliver long-term value is not a flaw in their design but a symptom of a world where macroeconomic shifts have outpaced the adaptability of conventional income vehicles. Investors must now prioritize flexibility, diversification, and a willingness to embrace non-traditional assets to navigate the challenges of 2025 and beyond.