The power of the night effect was demonstrated in large-cap stocks on Tuesday.
At market close, there was a 150 basis point spread between the prior night and day performance of the SPDR S&P 500 ETF Trust (SPY). SPY declined 0.01% during the prior night session, followed by a 1.51% drop during the day trading session on Tuesday, according to the NightWatch Mobile App.
The night effect is a phenomenon whereby equities have historically performed better during the overnight session (when local markets are closed) than during the day when markets are open. While the night session does not outperform the day session every day, it has historically outperformed the day session from a risk and/or return perspective.
Notably, investors do not have to accept more risk, as measured by volatility, to access the historically positive overnight returns captured by the night effect. In fact, the annualized daily volatility has been lower in the night session than the day sessions across a range of periods, according to NightShares.
NightShares launched two ETFs last year providing exposure to the night session of large-cap stocks. The NightShares 500 ETF (NSPY) offers focused exposure to the night performance of 500 large-cap U.S. companies. For investors not looking to forego day exposure entirely, the NightShares 500 1x/1.5x ETF (NSPL) tilts toward the night, offering exposure to both night and day sessions and providing investment results, before fees and expenses, that correspond to 100% of the performance of a portfolio of 500 large-cap U.S. companies during the day and 150% of the portfolio performance at night.
The night effect was also observed in small-caps this week. On Tuesday, the spread between the prior night and day performance of the iShares Russell 2000 ETF (IWM) was 108 basis points. IWM declined 0.03% during the prior night session and declined 1.11% during the day trading session. On Monday, IWM’s night session was up 0.03% and the day session fell 1.49%, according to the NightWatch Mobile App.
The NightShares 2000 ETF (NIWM) provides exposure to the night performance of 2000 small-cap U.S. companies.
For more news, information, and analysis, visit the Night Effect Channel.