The JPMorgan Equity Premium Income ETF (NYSE:JEPI) stock continues to attract billions of dollars from investors this year despite its ongoing underperformance. These inflows continued as income investors chased its high dividend yield.

JEPI ETF Has Added $4 Billion This Year

JEPI, the biggest covered call ETF in the world, has added over $4 billion in assets this year, bringing its assets under management to over $44.5 billion. JPMorgan NASDAQ Equity Premium Income ETF (NYSE:JEPQ), its sister fund, has added $5.1 billion in the same period.

The ongoing inflows have jumped as investors continue to chase their high dividends. Data shows that it has a dividend yield of 9.78%, higher than the Vanguard S&P 500's (NYSE:VOO) 1.02%. Invesco (NASDAQ:QQQ) has a yield of less than 1%.

The fund offers a higher annual return than government bonds. The ten-year yield stands at 4.43%, down from the year-to-date high of 4.68%. Similarly, the two-year yield has a 4% yield. 

JEPI's promise is to provide investors with access to some of the biggest American companies. According to its website, it tracks 124 companies like NVIDIA (NASDAQ:NVDA), Broadcom (NASDAQ:AVGO), Amazon (NASDAQ:AMZN).

At the same time, it uses the covered call approach to generate monthly returns. It does that by writing call options on the S&P 500 Index. The call options give it a right, but not the obligation to buy the index before an expiration date. This option gives it the premiums, which it pays investors as a monthly dividend.

The 9.78% Dividend Yield Has a Catch

In theory, the promise of growth and high dividends sounds good. However, it has a catch in that the fund often underperforms the broader market when there is a bull run. 

For example, JEPI stock has retreated by 6.50% from its highest point this year as top indices like the S&P 500 and Nasdaq 100 have soared to a record high. 

The situation is worse when you consider the total return, which includes the stock's performance and the dividends. Data shows that JEPI has had a total return of 0.59% this year compared to S&P 500's 11.25%. 

The same has happened in the last 12 months as the S&P 500 Index has jumped by 30% compared to its total return of just 8.7%. This performance is because that's how JEPI and other covered call ETFs are designed. 

When there is a bull market, as we are in today, the sold calls go in the money, where the shares get called away at the strike price. As such, if the S&P 500 Index jumps by 8% in a month, but the ETF sold catts at a 2% out-of-the-money strike, it captures only 2% of the upside. 

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