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Are the NightShares ETFs a Good Investment?

NightShares is a new fund that focuses on investing during the market close to avoid volatile day trading. What ETFs does the company have?

NightShares was created to benefit from the “night effect.” According to the company’s CEO Bruce Lavine, stocks bought when the market closes (night) and sold at market open (day) frequently outperformed the market over the past 14 years. This period also tends to experience less volatility due to the absence of day traders. Lavine cites news flow as a key factor behind the night effect as it is a time when investors feel the need to catch up with the effects of earnings, mergers, and acquisitions. 

What ETFs does the company provide?

The first fund is the NightShares 500 ETF (NYSEARCA: NSPY). This tracks the night performance of a portfolio of 500 large-cap U.S. listed stocks and began trading on the 28th of June. Since then, it has lost 3.64%. Although the fund does not follow a particular index, for comparison, the S&P 500 index (NYSEARCA: VOO) has gained 1.60% during the same period. 

Roughly 56% of the ETFs’ holdings are in futures contracts while 42.11% of the funds are invested in the U.S. dollar, which has strengthened significantly against most currencies over the past year. This is a small fund with just $7.55 million in assets under management. It is a relatively expensive ETF as its expense ratio of 0.55% is above the weighted average of 0.41%. While this is still lower than an actively managed mutual fund, it is something to think about before investing. 

The second fund is the NightShares 2000 ETF (NYSEARCA: NIWM). This tracks the night performance of a portfolio of 2000 small-cap U.S. listed stocks and its inception date was the same as the NightShares 500 ETF. Since then, it has generated a loss for investors of 4.59%. Like the other ETF, it does not track an underlying index, but, for comparison, the Russell 2000 index (NASDAQ: VTWO) returned 1.42% during the same period. 

The fund has a higher weighting towards futures contracts at 57.11% of total assets under management. This is due to the lower weighting of U.S. dollars at 38.75% of the fund’s total holdings. The ETF is also roughly half the size of the NightShares 500 ETF. This is likely due to investors piling into safer large-cap stocks to help them weather the headwinds facing the market. The NightShares 2000 ETF also has a high expense ratio of 0.55%, especially when considering the fund’s underperformance compared to other, cheaper indexes. 

Should I invest in the NightShares ETFs?

It may be a good idea to leave investing in these funds for a few months, but instead add them to your watchlist. This will allow you to make a more informed decision when there is more data about the ETF’s holdings, investment philosophy, and performance. While this is a unique and potentially lucrative way of investing, it is also very new and needs time to develop and prove its worth before becoming a worthwhile investment. 

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