How BlackDiamond Wealth Management Uses the Night Effect in Portfolios

BlackDiamond Wealth Management is leveraging the night effect to enhance returns in client portfolios.

BlackDiamond Wealth Management is a Manhattan-based registered investment advisor, primarily working with individual clients. The firm has a focus on financial planning as well as asset management.

“The way we think about [the NightShares 500 1x/1.5x ETF (NSPL)] is just a slightly better [SPDR S&P 500 ETF Trust (SPY)]. You’re getting a little bit of that tilt towards the night, using a little bit of leverage. Everyone gets a little worried about the word leverage, but this is the right kind of leverage,” Ken Nuttall, CIO at BlackDiamond Wealth Management, said on June 26 during “Using NightShares’ NSPL to Tilt to the Night.”

NSPL efficiently and cost-effectively captures the night effect, a market anomaly whereby overnight markets have historically outperformed the daytime trading session on a risk-adjusted basis. The night session tends to contribute most of the returns, while the day session contributes most of the volatility.

See more: “NSPL Outpaces S&P 500 Over 1- and 3-Month Periods

Why Capture the Night Effect in Portfolios

Nuttall said that looking at historical data, it’s apparent investors are getting added return for leveraging the overnight session.

“85% of the time the overnight is up versus the day,” Nuttall said. “It’s a pretty strong trend. Unfortunately, the trend has not been working the last two quarters, but it is definitely something over time that pans out for you.”

Nuttall said that before NightShares ETFs launched in 2022, he’d tried to capture the night effect using his own ETFs. However, buying at the end of the day and selling at the open was too challenging to do. Now, he uses NSPL in his clients’ large-cap allocations. 

See more: “Astoria’s John Davi on the Night Effect’s Role in Portfolios

“We use it kind of as a replacement for S&P 500 in our portfolios,” Nuttall said. “We don’t replace the whole thing with it, but we have used [NSPL] since the beginning of the year as a small replacement for the S&P 500 — our large-cap exposures — and it has worked well for what we’re trying to achieve for our clients.”

Nuttall said, on average, about 25% of the firm’s portfolio is a large-cap allocation. Within that allocation, NSPL makes up about 3% of the total portfolio.

 For more news, information, and analysis, visit the Night Effect Channel.