New Overnight Exposure ETFs

It's no secret that big moves happen during "extended" trading hours. These extended hours are those that come before and after the markets' standard hours.

During these hours, 4:00am until the market opens at 9:30am Eastern and after then again when regular trading ends at 4:00pm until 8:00pm Eastern, company earnings are reported, merger and acquisition news is posted, and a slew of other big newsworthy events trickle out to investors. Newer retail traders may not know about these ‘extended’ trading hours, but those who follow the markets closely understand the importance of this time.

These extra hours of trading are so important because, during the morning session, it more or less sets the tone for the overall trading day.

In the pre-market hours, we received a few earnings reports that make stocks move in one direction or another. But more importantly during the morning session, investors receive a lot of the economic data that will dictate what is occurring in the economy and thus cause the market to move one way or the other.

During the after-hours trading period, from 4:00pm until 8:00pm Eastern, investors are hit with more company-specific news, such as the bulk of earnings reports, conference calls, company-specific ‘material’ or special information, and mergers and acquisitions.

These more company-specific news events cause individual stocks to make massive moves either higher or lower, but typically won't effect the overall markets the same as the economic data and reports that are released pre-market.

And then, of course, we also have the none stock market or economic data news, such as bombings, terrorist attacks, weather events, etc. These news stories are unpredictable but can push and pull the prices of individual stocks or the broader market. Even those that occur during non-regular trading hours, and perhaps don’t directly relate to businesses that trade on the market could still have an overall effect on the price of stocks (both positively or negatively).

How can we take advantage of these pre and postmarket moves?. The fund managers of two new exchange-traded funds (ETFs), the NightShares 500 ETF (NSPY) and the NightShares 2000 ETF (NIWM) believe they have a strategy to leverage these times of volatility. The back-tested theory behind these ETFs has found that by owning stocks during the non-regular trading period and then selling them during regular trading times, you would have performed better than the overall market.

Just this year, for example, the S&P 500 is down 18%, but during the non-regular trading hours, it's only down 10%. The Russell 2000 has a similar story, down 21% during regular trading hours and only 7% if you where just invested overnight according to AlphaTrAI.

The NSPY is a fund that will track the S&P 500 while the NIWM will track the Russell 2000. Both funds are intended to be held for just one day at a time, since they will be using futures, options, and derivatives to gain exposure to the markets. Furthermore, each fund will offer investors 1X exposure to their corresponding index during regular trading hours and 1.5X exposure during the overnight period. These exposure percentages are before fees and expenses.

Due to the methods being used to gain exposure and the fees and expenses, these products are not intended to be held for long periods of time and will lose value due to contango and other factors at play. Therefore, NSPY and NIWM are not necessarily intended for long-term buy-and-hold investors, although they can be. These ETFs will primarily be used to hedge against risk or purchased daily by traders whom want broad exposure to the overnight market.

Both funds went live the last week of June 2022, so performance data is not yet known. However, we do know that each fund has an expense ratio of 0.55%, which is much higher than index-tracking ETFs, but about in line with a niche fund offering very special exposure.

There are not currently any ‘overnight short’ ETFs available to investors, likely because Alphatrai Funds, the issuer of both NSPY and NIWN, believes the overnight market is more bullish. But, if you are insistent on being short overnight, you could always short these ETFs and buy put options contracts, if and when options become available for these funds.

If you are invested long term in stocks, you already have ‘overnight’ exposure, since you are not likely buying at the open and selling at the close each and every day. However, even for long term investors, having a way to ‘hedge’ risk when the market is not open each evening, or maybe even more importantly during the weekend, is always nice and may help you sleep better, especially during times when the market is abnormally turbulent.

Matt Thalman Contributor
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.