NightShares, a newly minted ETF issuer, has debuted two US equity funds that seek to capture value from the “Night Effect”.
Bruce Lavine, CEO of NightShares.
The NightShares 500 ETF (NPSY US) and NightShares 2000 ETF (NIWM US) have been listed on NYSE Arca with expense ratios of 0.55% each.
The Night Effect refers to how overnight markets have historically outperformed daytime trading sessions on a risk-adjusted basis, exhibiting higher returns alongside similar or even lower levels of volatility.
The phenomenon, which has been confirmed through academic research dating back to 2008, is believed to be caused in part by the greater frequency of corporate announcements, such as earnings results, that are reported outside of traditional trading hours.
Additionally, overnight markets benefit by avoiding a greater proportion of severe downturns which tend to happen more often during normal trading hours, potentially because scores of day traders may amplify these events.
According to research compiled by AlphaTrAI, a sister company of NightShares, while the Night Effect is evident across the market capitalization spectrum, it is particularly pronounced in smaller-cap stocks.
NPSY and NIWM aim to capture the Night Effect in US large and small-cap equities, respectively, by systematically buying overnight futures positions in the S&P 500 and Russell 2000 indices at the close of each trading day and exiting those futures positions at the beginning of the next trading day.
NightShares further notes that the Night Effect is not unique to the US equity market with overnight returns having been shown to beat intraday returns in at least 23 different countries, highlighting the potential for the firm to further expand its product suite.
Bruce Lavine, CEO of NightShares, said: “Though the outperformance of overnight markets has been identified and documented by a large body of research for some time, until now there has not been a simple way for ETF investors to capture the value of this phenomenon. With these innovative ETFs, we are giving investors exposure to broad equity markets focused on the overnight session, which can potentially improve performance and lower overall portfolio volatility.”
Max Gokhman, CIO of AlphaTrAI, added: “This is a story we’re excited to tell, and we look forward to talking with institutions, advisors, and the broader investor community about the potential benefits from integrating the night effect into their portfolios. For instance, the historically lower volatility of the overnight session may lead to better up/down capture ratios, allowing investors to more comfortably maintain their target equity exposure through periods of market turbulence such as we have been experiencing throughout so much of 2022.”