I'd Hold High Income ETFs to Beat the SPY

The S&P 500 is wandering into uncharted territory as it looks to wander above the 6,500 mark going into the last four months of the year. It’s never been so concentrated at the top, and with valuations on the rise (it may find itself closing in on a 30 times trailing price-to-earnings (P/E) multiple), some wonder if the SPDR S&P 500 (NYSEARCA:SPY) is overdue for a correction.

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The SPY is concentrated and getting more expensive. Time for a shift to income and value?

Though the top-heaviness of the index is not a bad thing (it’s been a good thing in recent years, given the outperformance of mega-cap tech and the Mag Seven names), I do think that some caution is warranted, especially as the P/E skews more towards the high side of the historical range. Of course, high P/E ratios do not necessarily suggest a crash is around the corner. Betting against the market with all this momentum could prove dangerous, especially if the AI boom really delivers next year.

While I’m no fan of chasing hot markets, I do acknowledge that we’re in a different kind of environment. And, with that, a more nuanced perspective is required, given that agentic AI could certainly pave the way for faster earnings growth. Could digital labor reduce R&D spend while allowing firms to become as productive as ever? Time will tell. There’s certainly a scenario that exists where today’s high market multiples are more than deserved.

Time to shift to high-income ETFs and value plays?

In any case, those keen on beating the SPY (or S&P 500) may wish to skew more towards lower-cost stocks or income-focused ETFs, especially since not every bid-up AI “winner” can deliver upon expectations put ahead of them. If even Nvidia (NASDAQ:NVDA) stock can fall following remarkably strong earnings, so, too, can other high-momentum names leading this market.

Could the lukewarm reception to Nvidia’s latest second-quarter results be a sign that expectations for AI names have grown high enough that the tech-led bull market may be in for more modest results moving forward? It’s tough to say. The AI boom isn’t about to slow down. However, that doesn’t mean the broad markets can’t as AI progress looks to catch up with the hype.

The JEPI: An intriguing income ETF

In this piece, we’ll have a look at an income-focused ETF that I think can allow one to fare well (perhaps even better) than the SPY, especially if 2026 is the year where gains are harder to come by for AI stocks. Consider the JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI), which has an 8.4% yield and 0% in returns on a year-to-date basis.

Though the covered call ETF caps potential upside, I do see the ETF as winning out (at least on a relative basis) in climates that see the SPY move sideways to lower. So, if you’re concerned about the near-30 times P/E of the SPY and are fine with trading off some upside for extra income, a name like JEPI could walk away as a relative outperformer.

Of course, the ideal scenario would see a volatile flat-lined market that allows for generous premiums on call options. Though JEPI isn’t immune to pain from sudden market scares (shares are still recovering from that first-half plunge), I am a fan of the security for those who think the SPY could begin to drag its feet after clocking in what now looks like three straight years of incredible performance. Personally, I think the odds of a year-long consolidation in the SPY are high. And in such a scenario, I see JEPI as an interesting name to consider.