Why the Under-the-Radar DIVO ETF Could Surpass JEPI in the Low-Yield Era

The Federal Reserve's pivot toward rate cuts has reshaped the investment landscape, leaving income-seeking investors scrambling for yield without sacrificing growth. In this environment, two actively managed equity income ETFs—DIVO and JEPI—have emerged as contenders. While JEPI has traditionally drawn attention for its high dividend yield, DIVO's under-the-radar strategy of combining dividends with option premiums positions it as a stealthy overperformer. Here's why DIVO could outlast JEPI in the low-yield era.

The Yield Dilemma: High vs. Sustainable

JEPI's trailing twelve-month dividend yield of 8.22% outshines DIVO's 4.64%, making it a magnet for income hunters. But high yields often come with hidden risks. JEPI's historical yield volatility—spiking to 11.67% in 2021 before dropping to 5.79% in 2020—hints at its reliance on cyclical sectors or leveraged instruments. In contrast, DIVO's yield has remained relatively stable, fluctuating between 3.83% and 8.16% since 2017. This consistency suggests a more diversified income engine, blending equity dividends with option premiums from covered calls.

Line graph comparing the annualized returns of DIVO and JEPI from 2020 to 2025, highlighting DIVO's consistent outperformance

Risk-Adjusted Returns: Where DIVO Shines

While JEPI boasts lower volatility (1.79% vs. DIVO's 2.29%), its risk-adjusted metrics lag behind. DIVO's Sharpe Ratio (1.09), Sortino Ratio (1.60), and Calmar Ratio (1.26) all outperform JEPI, reflecting its ability to generate returns per unit of risk. Even its Ulcer Index (3.21%)—a measure of downside pain—is marginally better. Crucially, DIVO's Martin Ratio (4.76), which gauges recovery from drawdowns, dwarfs JEPI's 2.63, suggesting it can rebound faster in volatile markets.

The Fed Rate Cut Catalyst

As the Fed eases rates to combat economic headwinds, dividend-focused ETFs face a dual challenge: stagnant yields and rising capital preservation demands. Here's where DIVO's option premium strategy gains an edge. Unlike JEPI, which relies heavily on equity-linked notes and capped upside potential via covered calls, DIVO's hybrid approach allows it to capture both dividend growth and premium income. In low-rate environments, companies with stable cash flows (often the core of DIVO's holdings) tend to outperform cyclicals, while option premiums buffer returns even when stock prices stagnate.

JEPI's strategy, by contrast, may struggle as rate cuts compress the premiums available from covered calls. Its 0.81 correlation with DIVO also limits diversification benefits, leaving investors exposed to similar risks.

Performance in Practice: Outpacing JEPI Over Time

The numbers speak clearly: over the past five years, DIVO's 14.06% annualized return outpaces JEPI's 11.44%, and its three-year return advantage (13.08% vs. 9.76%) widens further. Even year-to-date in 2025, DIVO leads by nearly 5 percentage points (7.67% vs. 2.52%). This performance edge isn't luck—it's a product of DIVO's active management, which dynamically adjusts option strikes and sector allocations to capitalize on low-rate conditions.

Navigating Tax Implications

A critical caveat: DIVO's option premiums often qualify as short-term capital gains (taxed at higher rates), whereas JEPI's dividends may benefit from qualified tax treatment. However, in a low-yield world where total returns matter more than tax efficiency, the 0.20% expense ratio gap (JEPI at 0.35%, DIVO at 0.55%) is a minor trade-off for its superior risk-adjusted gains.

The Bottom Line: Risk, Return, and the New Normal

For investors prioritizing sustainable income and capital preservation, JEPI's stability has merit. But in a prolonged low-yield era, the calculus shifts: DIVO's blend of dividend growth and option premiums offers a better chance to outpace inflation while navigating Fed-induced volatility. Its historical resilience in drawdowns and its outperformance over multiple cycles underscore its potential as a core holding for aggressive income seekers.

Split chart comparing the maximum drawdowns and recovery times of DIVO and JEPI since 2020

Final Recommendation

Consider a gradual shift from JEPI to DIVO, particularly if your portfolio requires growth alongside income. Pair it with low-volatility assets to offset its higher risk profile. The Fed's easing cycle isn't just a temporary blip—it's the new normal. In this environment, DIVO's active strategy isn't just an underdog story—it's a blueprint for outlasting the low-yield era.