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‘Night Effect’ ETFs to Shut Down With Overnight Stock Returns Elusive

The $3.7 million NightShares 500 ETF (NSPY) and the $1.4 million NightShares 2000 ETF (NIWM) will stop trading at the end of this month and liquidate on Aug. 10.

Bloomberg) -- Two exchange-traded funds designed to profit from overnight gains on US stocks are set to shutter after lagging their daytime counterparts. 

The $3.7 million NightShares 500 ETF (ticker NSPY) and the $1.4 million NightShares 2000 ETF (NIWM) will stop trading at the end of this month and liquidate on Aug. 10. Investment adviser for both, AlphaTrAI Funds, recommended the decision saying it was in the “best interests” of the ETFs and their shareholders, according to a filing last week with the Securities and Exchange Commission. 

After launching last June, both funds have struggled to attract assets and badly underperformed their benchmarks. The ETFs use futures and swaps to capture the difference in returns between when US trading hours end and when the market reopens. 

While overnight action has been shown to deliver better returns than regular trading — chalked up to factors such as off-hours news announcement, such as data releases or earnings reports — trading costs and other components can eat into performance when the strategy is actually implemented, according to Morningstar Inc. 

“Investment strategies that look great on paper are rarely worth more than the paper they’re written on,” Ben Johnson, Morningstar’s head of client solutions for asset management, said. “That’s often because they don’t adequately account for real-world implementation costs.”

Since inception, NSPY has dropped 6.9% on a total return basis, versus a 22% rally for the S&P 500. It’s a similar story for NIWM — the ETF is down over 10% since its launch last June, while the Russell 2000 has climbed 16% over that period. 

Returns for $15 million NightShares 500 1x/1.5x ETF (NSPL), which launched in October, have performed better, though still trail the S&P 500. NSPL also offers leveraged exposure to overnight performance in addition to the index’s daytime returns. Last month, an application was filed for the NightShares Select ETF. 

The leveraged fund will stay open, while plans to launch the next fund are ongoing, according to Bruce Lavine, NightShares chief executive officer and founder.

“This is a product pivot, not a retreat,” Lavine said in an emailed statement. “We have learned a lot and still believe in the night effect and we are improving our offerings.”

--With assistance from Vildana Hajric.

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