Animal Spirits – Talk Your Book: The Biggest Active ETF
Podcast: Animal Spirits (with Michael Batnick & Ben Carlson, The Compound)
Guest: Hamilton Rayner, J.P. Morgan Asset Management
Date: April 13, 2026

Episode Overview

This episode centers on the rise, approach, and evolving strategies of actively managed option-income ETFs, with a special focus on J.P. Morgan's JEPI (JPMorgan Equity Premium Income ETF)—the largest active ETF in the world. Returning guest Hamilton Rayner, from JP Morgan, shares insights into JEPI’s appeal, how covered call option strategies work, portfolio construction philosophy, new ETF offshoots, and the broader context of the ETF industry’s growth in sophisticated income-focused products.

Key Discussion Points & Insights

1. The Surprising Popularity of Conservative Option-Income ETFs

[01:14-02:45]

• Despite a market era dominated by speculation (sports betting, zero-day options, predication markets), more “boring” conservative investments like covered call ETFs have exploded in popularity.
• Michael Batnick notes: “It’s just an interesting dichotomy to me that these aren’t like the speculative fever, right? These are, for lack of a better word, boring.” [01:30]

2. Origins and Purpose of JEPI

[03:58-06:23]

• Hamilton Rayner: “It’s the largest active ETF in the world by AUM and holy cow.” [04:07]
• JEPI and “JEQ” (another J.P. Morgan ETF) are designed for income-seeking investors who desire equity exposure with less risk and volatility, often at the cost of not capturing 100% of market upside in strong bull years.

3. Trade-Offs of Covered Call Strategies

[04:38-05:24]

• These ETFs employ options premiums to cushion drawdowns, but as Rayner highlights, “These things have trade-offs. You are going to be…leaving some on the table in a rip roaring bull market.”
• Active management in picking underlying stocks can add additional alpha.

4. How Active Management Adds Value

[05:42-07:57]

• JEPI places a cap (~2%) on individual positions and sector limits (~17.5%) for diversification.
• J.P. Morgan leverages a large team of 80 analysts and a robust research budget for stock selection.
• Rayner on construction: “It’s not just how much you buy, it’s how much of it. The weighting is incredibly important.” [07:35]

Notable Quote

“Stock selection is only 50% of the alpha…The weighting of it is also incredibly important.” — Hamilton Rayner [07:40]

5. Process and Adaptability in Management

[08:17-08:40]

• While rooted in a consistent process (discounted cash flow analysis, long-term projections), Rayner emphasizes adaptability: “When the information changes, I reserve the right to change my opinion. Was that Keynes?” [08:29–08:38]
• The process learns and evolves as conditions and information change, avoiding arbitrary day-to-day influence.

6. Diligence: What Makes JEPI Stand Out from Competitors

[09:17-11:54]

• Investors shouldn’t be blinded by gaudy distribution yields; total return and NAV preservation are key.
• Understanding stock quality, transparency in how options income is generated, and scale of management resources matter.
• Financial engineering and complexity aren’t prerequisites for investment success.
• “If I can’t explain it to somebody, I probably shouldn’t be investing in it.” — Hamilton Rayner [11:14]

7. Market Impact of Option-Income ETFs

[12:21-13:48]

• Despite explosive ETF growth, option overlay strategies (like those J.P. Morgan uses) are a drop in the ocean compared to $3.5 trillion/day traded in S&P 500 options.
• These ETFs have negligible impact on index option markets, becoming more material only at the single-stock options level.

8. How JEPI Executes its Option Overlay

[13:48-14:53]

• Contrary to assumptions, JEPI writes call options at the index level (not individual stocks).
• This prevents scenarios where “your winners [are] taken away and [you’re] left with your losers.”
• Rayner explains: “If you do options at the index level, you get all the alpha of Google as well as all the alpha with Nvidia. But you don’t get capped on your winners and left with your losers.” [14:24]

9. New Product Launches: Responding to Investor Needs

[15:12-18:38]

• J.P. Morgan has expanded its offering with:
  • Distribution-Reinvesting Strategies: For those preferring to compound option premium inside the fund rather than take distributions (e.g., JOYT).
  • Tax-Deferred Option-Income ETFs: e.g., ROXY (S&P 500) and ROCQ (NASDAQ).
• “We are the only firm … that has the ability to pay out its income as a coupon 1099…[and] … reinvest our options premium.” — Hamilton Rayner [15:42]
• These innovations allow investors to tailor according to tax preferences and reinvestment desires.

10. Portfolio Strategy and Usage

[18:52-27:04]

• Covered call ETFs offer three “ways to win”:
  • Bull markets: Capture most of the upside, but not 100%.
  • Sideways markets: Generate income through options premiums.
  • Bear markets: Cushion part of the downside.
• Can be used as:
  1. Anchor for income-focused clients.
  2. Conservative equity exposure.
  3. Blended alternative, drawing assets from both stocks and bonds.

Notable Quotes

“One of the greatest ways of compounding wealth over time is losing less.” — Hamilton Rayner [22:22]

“They’re not meant to replace your equities because they have less beta. They’re not meant to replace your fixed income because they do have equity market beta. They’re meant to complement your well established portfolio construction.” — Hamilton Rayner [26:10]

Notable Quotes

• Hamilton Rayner on transparency:
  “If I can’t explain it to somebody, I probably shouldn’t be investing in it.” [11:14]
• On risk reduction:
  “If we can help people stay invested and lose less over time, we think we’re in a good spot.” [22:22]
• On adaptability:
  “When the information changes, I reserve the right to change my opinion.” [08:29]
• On the ETF’s size:
  “Is there any worry about the scale and you pushing around some of these underlying names, especially at the option level, at the index level?” — Michael Batnick [20:07]
  “Over three and a half trillion notional per day…I think you’re good there.” — Hamilton Rayner [20:54]

Timestamps for Key Segments

• [01:14-02:45] The rise of “boring,” conservative income ETFs in a speculative era
• [03:58-06:23] JEPI’s positioning and underlying stock selection process
• [07:57-08:40] Active management philosophy and adaptability
• [09:17-11:54] How to compare and evaluate covered call ETFs
• [12:21-13:48] Potential market impact of growing ETF option overlays
• [13:48-14:53] Difference between writing options at stock vs. index level
• [15:12-18:38] New ETF launches and tailoring for income / tax efficiency
• [18:52-20:07] The mechanics of “multiple ways to win” with these strategies
• [22:28-24:52] ETF utility in investor portfolios and the appeal of “losing less”
• [26:19-27:25] Where these funds fit in portfolios: anchor, alternative, equity-lite

Conclusion

The episode provides a comprehensive look at the evolution and mechanics of the world’s largest active ETF (JEPI), its risk/return trade-offs, and broader trends in the covered call ETF space. Hamilton Rayner highlights how process-driven active stock selection, risk weighting, and option overlay choices combine to address investor needs for income and risk reduction, all while adapting to market realities. The conversation closes with practical guidance on incorporating these products as complements, not substitutes, in diversified portfolios.

To learn more:
Visit jpmorganassetmanagement.com for fund details.