These new ETFs are burning midnight oil to make money for investors

Two new ETFs released this summer are working the night shift.

The NightShares 500 [NSPY] and NightShares 2000 ETFs [NIWM] do something that no ETF has done before: take advantage of what is known as the “night effect”.

According to NightShares CEO Bruce Lavine, stocks bought at market close and sold when markets reopen in the morning often outperform based on research going back about 14 years.

“In the case of small caps, over many years, the daily return is negative on the Russell 2000 [.RUT]”, Lavine told CNBC’s “ETF Edge” on Monday. “We have two funds, large-cap [NSPY] and small cap [NIWM]trying to…capture this effect for investors.”

Lavine’s after-hours strategy emphasizes large-cap and small-cap stocks. For example, his company’s NightShares 2000 ETF, for example, is designed to track the Russell 2000 in the early morning hours.

He cites the flow of information as a key factor behind the “night effect”. It’s a time, he argues, when investors often feel the need to catch up with the effects of profits, mergers and acquisitions.

Financial institutions’ risk aversion also plays a large role in Lavine’s optimism about overnight stays.

“They leave something on the table”

“People sometimes have this kind of desire to go home flat so they can sleep at night,” Lavine said. “They leave something on the table for other investors.”

Lavine expects the “night effect” and its related behavioral phenomena to persist.

“Statistically, bear markets occur during the daytime session,” Lavine said. “It’s much more common.”

So far, ETFs have underperformed the Russell 2000 and the Dow since their inception on June 28.

ETFs NightShares 500 and NightShares 2000 are down 5.7% and 6.9%, respectively. Meanwhile, the Russell 2000 is down 3.6% and the Dow is down 2.6%.


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