When you see an ETF with a juicy 8%, 10%, or even 12% yield, it’s easy to think they’re all created equal. They fall under a broad “factor” label—in this case, Synthetic Income—and promise to deliver high monthly cash flow. But pop the hood, and you’ll find that these funds have wildly different engines driving them. The label doesn’t tell the whole story.
This is the core idea behind our “Factor Flavors” series. Today, we’re dissecting four of the most popular income ETFs to uncover their unique flavor profile. Using a detailed institutional report, we’ll compare JEPI, DIVO, SPYI, and KNG against the S&P 500 (represented by SPY). Let’s see what makes each one tick.
The Performance Story: A Tale of Two Markets
A quick glance at performance reveals just how different these funds are. Their unique construction leads to dramatically different outcomes depending on the market environment.
The bear market of 2022 was a perfect test of their defensive capabilities. While the S&P 500 (SPY) plunged over 18%, these income funds cushioned the blow significantly.
DIVO and JEPI were the star defenders, falling only -1.47% and -3.54%, respectively. They did exactly what they were designed to do: provide income and protect capital in a downturn.
But the subsequent bull run in 2023 told a different story. As SPY roared back with a 26% gain, the funds’ performance diverged.
DIVO again proved its mettle, capturing a respectable 18.41% of the rally. JEPI, the prior year’s stalwart defender, lagged significantly with a 9.55% return, showing its more conservative nature. This reveals the fundamental trade-off: the very thing that protects you in a down market can hold you back in a rally.
Under the Hood: Finding Each Fund’s Flavor
So, why do they perform so differently? It all comes down to their methodology and portfolio construction. Let’s give each fund a personality based on its unique DNA.
SPYI: The Index Hugger
The NEOS S&P 500 High Income ETF (SPYI) has a massive 96% holdings overlap with the S&P 500. Its strategy is straightforward: buy all the stocks in the S&P 500 and then sell call options on the index itself (SPX) to generate income. This approach aims for tax efficiency, as SPX options are classified as Section 1256 contracts, which have favorable tax treatment.
- Flavor Profile: Think of SPYI as the S&P 500 with a high-octane income engine bolted on. With a beta of 0.70, it’s less volatile than the market but is designed to move in lockstep with it. It’s for the investor who wants core market exposure but with a primary goal of generating high, tax-advantaged monthly income.
DIVO: The Active Stock Picker
The Amplify CWP Enhanced Dividend Income ETF (DIVO) is a completely different beast. It is an actively managed fund that ignores the broader index and instead builds a concentrated portfolio of 20-25 high-quality, dividend-paying stocks. It then writes call options on those individual stocks. This active, stock-by-stock approach gives it a tiny 23% overlap with the S&P 500. Its portfolio is heavily overweight Financials and Industrials while shunning the mega-cap tech names that dominate SPY.
- Flavor Profile: DIVO is for the investor who trusts active management to find opportunities. Its high conviction, low-overlap strategy has delivered a more balanced risk profile, capturing a healthy 72% of market upside while participating in 73% of the downside (based on 3-year stats). This balance has made it a strong performer in both up and down markets.
JEPI: The Low-Volatility Anchor
The JPMorgan Equity Premium Income ETF (JEPI) is built for defense. Its primary objective is to provide income with lower volatility than the S&P 500. It achieves this by holding a portfolio of defensive, low-volatility stocks and using Equity-Linked Notes (ELNs) to generate its option income. This focus on stability is reflected in its rock-bottom beta of just 0.60.
- Flavor Profile: JEPI is the quintessential defensive income play. As we saw in 2022, it shines when markets are falling. However, its low upside capture of just 58% means it will likely lag during strong bull runs. It’s a flavor for the risk-averse investor who is willing to sacrifice some upside potential for a smoother ride and robust downside protection.
KNG: The Aristocrat Outlier
The FT Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG) has the most unique, and frankly, puzzling, profile. It passively tracks an index of Dividend Aristocrats—companies that have raised dividends for at least 25 consecutive years—and sells calls on them. This results in a portfolio with almost no resemblance to the S&P 500, with only 12% overlap and a massive 53% allocation to mid-cap stocks.
- Flavor Profile: While its focus on quality dividend growers is appealing, the data reveals a critical flaw. Over the last three years, KNG has captured over
102% of the market’s downside while only capturing 67% of the upside. This difficult risk-reward profile has led to it consistently lagging its peers. It’s a very distinct flavor that has, so far, proven to be an acquired taste.
Choose Your Flavor
As you can see, the “Synthetic Income” label covers a wide spectrum of strategies. Your choice depends entirely on your goals:
- SPYI: A core S&P 500 holding with a tax-efficient income stream.
- DIVO: An active, concentrated bet on dividend-paying stocks with a balanced risk profile.
- JEPI: A defensive anchor designed to reduce volatility and protect on the downside.
- KNG: A pure-play on equal-weighted Dividend Aristocrats with a heavy mid-cap tilt.
These insights just scratch the surface of what a detailed fund comparison can reveal. If you want to look under the hood of your own investments, the tools are at your fingertips.
Ready to find your flavor? Create a free account today to view the full institutional report used for this analysis and run your own powerful fund comparisons!
Disclosures
This material is for informational purposes only and should not be considered investment advice. All investments, including ETFs, involve risk, including the possible loss of principal. Investors should consider their investment objectives, risks, charges, and expenses carefully before investing.
This analysis was developed by the team at ETF Action. We leverage advanced AI tools to assist in the drafting and refinement of our content, based on our expert prompts, direction, and final review.
