NSPL Outpaces S&P 500 Over 1- and 3-Month Periods

Leveraging the overnight trading session is a strategy that is outperforming in the current environment.

The NightShares 500 1x/1.5x ETF (NSPL) offers leveraged exposure to the overnight trading session. The fund aims to provide returns that correspond to 100% of the performance of a portfolio of 500 large-cap U.S. companies (comparable to the S&P 500) during the day and 150% of the portfolio performance at night.

In the past month, NSPL is up 7.0% while the S&P 500 has climbed 6.1%. Over a three-month period, NSPL has returned 15.7% while the benchmark has gained 13.8%.

“The broader market has rallied in anticipation that the Fed will pause its rate hiking program this week. Yet investors would have done even better if they incorporated after hours trading,” Todd Rosenbluth, head of research at VettaFi, said. “When the stock market closes, gains are still to be had.”

A persistent phenomenon referred to as the night effect, overnight markets have historically outperformed the daytime trading session on a risk-adjusted basis. The night session, defined as buying at close and selling at the next open, performs very different than the daytime session. The night session tends to contribute most of the returns, while the day session contributes most of the volatility.

In May, U.S. large caps, measured by the SPDR S&P 500 ETF Trust (SPY), climbed 0.6%. The night session contributed 1.9% of positive performance while the day session declined 1.3%, clawing back some gains for buy-and-hold investors.

Academic research has suggested multiple reasons as to why the night effect exists. Frequently stated rationale focuses on the timing of information flow, risk management practices, and liquidity premiums arising from differences in the trading volumes between the day and night session, according to NightShares. 

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