JEPI vs. GPIX: Navigating NAV Erosion and Tax Efficiency in a Rising Rate World

In 2025, as central banks maintain elevated interest rates to combat inflation, income-focused investors face a critical dilemma: how to balance yield generation with risk management. Two leading contenders in the premium income ETF space—JPMorgan Equity Premium Income ETF (JEPI) and Goldman Sachs S&P 500 Core Premium Income ETF (GPIX)—offer distinct approaches to this challenge. This analysis evaluates their net asset value (NAV) erosion risk, tax efficiency, and risk-adjusted performance to determine which fund better suits long-term income strategies in a high-rate environment.

Strategic Foundations: Covered Calls and Defensive Portfolios

Both JEPI and GPIX employ covered call strategies to enhance returns by selling out-of-the-money options on the S&P 500. However, their underlying portfolios diverge. JEPI holds a defensive, actively managed basket of 115 large-cap U.S. stocks, with sector allocations capped at 17.5% and individual stock weights limited to 1.5%. This structure avoids overexposure to volatile sectors like technology, which dominates the S&P 500. GPIX, by contrast, tracks the S&P 500 index directly, offering broader market exposure but with less active risk mitigation.

Tax Efficiency: The Hidden Cost of Active Strategies

Covered call ETFs inherently face tax efficiency challenges due to frequent options trading. JEPI mitigates this by leveraging Section 1256 Contracts, which treat 60% of gains as long-term regardless of holding period. This structure, combined with tax-loss harvesting, reduces the burden of short-term capital gains. GPIX, while benefiting from in-kind redemptions to minimize taxable events, still experiences higher turnover due to its index-based approach.

For investors in taxable accounts, JEPI's strategy appears more favorable. Its lower volatility (13.41% daily standard deviation vs. GPIX's 17.70%) suggests fewer frequent trades and, consequently, fewer capital gains distributions. However, GPIX's 0.29% expense ratio (vs. JEPI's 0.35%) offers a slight cost edge, which could offset tax inefficiencies over time.

NAV Erosion Risk: The Volatility Factor

Rising interest rates and market volatility amplify NAV erosion risk for options-based strategies. JEPI's defensive equity sleeve and capped sector exposure provide a buffer. During the 2022 market downturn, the S&P 500 fell 18.1%, while JEPI declined just 3.5%. GPIX, though resilient, saw a steeper drawdown of -17.50% in early 2025.

The key difference lies in option strategy design. JEPI's covered calls are sold via equity-linked notes (ELNs), which may offer more stable premium income compared to GPIX's direct index options. Additionally, JEPI's lower volatility (beta of 80% to the S&P 500) suggests it is less susceptible to NAV compression during sharp market corrections.

Risk-Adjusted Performance: Sharpe vs. Stability

As of March 2025, GPIX outperforms JEPI in risk-adjusted metrics: a Sharpe ratio of 0.94 vs. 0.53, and a Sortino ratio of 1.56 vs. 0.97. These figures highlight GPIX's ability to generate higher returns per unit of risk. However, JEPI's lower max drawdown (-13.71% vs. GPIX's -17.50%) underscores its superior downside protection.

For income-focused investors prioritizing capital preservation, JEPI's defensive tilt may outweigh GPIX's higher Sharpe ratio. Conversely, those seeking aggressive yield growth in a volatile market might favor GPIX's higher turnover and volatility capture.

The Rising Rate Environment: A Tailwind for Covered Calls

Both funds benefit from higher interest rates, which increase the value of call premiums. In 2025, with the VIX averaging 23.37 (up from 18.95 in 2024), options premiums have surged, boosting income for both ETFs. JEPI's yield stands at 8.49%, while GPIX offers 8.13%. However, JEPI's sensitivity to rate hikes—evidenced by its 12% yield in 2022—suggests it may outperform in a further tightening cycle.

Investment Recommendation

• JEPI is ideal for tax-conscious investors seeking downside protection and stable income in a volatile, high-rate environment. Its defensive equity portfolio and tax-advantaged options strategy make it a compelling choice for taxable accounts.
• GPIX suits aggressive income seekers willing to accept higher volatility for stronger risk-adjusted returns. Its low expense ratio and broad market exposure make it a cost-effective option for those prioritizing yield growth.

In conclusion, while both ETFs excel in generating premium income, JEPI's tax efficiency and NAV resilience position it as the superior choice for long-term, income-focused portfolios in 2025. Investors should align their selection with their risk tolerance and tax situation, ensuring their strategy thrives in a rising rate world.