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These recent ETFs are burning the midnight oil to make investors money

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Two ETFs out this summer are working the overnight shift.

The NightShares 500 [NSPY] and NightShares 2000 ETFs [NIWM] are doing something no ETF has done before: Benefit from the so-called “night effect.”

In keeping with NightShares CEO Bruce Lavine, stocks bought on the market close and sold when markets open again within the morning often outperform based on research going back about 14 years.

“Within the case of small-caps, over many, a few years the daytime return is negative on the Russell 2000 [.RUT],” Lavine told CNBC’s “ETF Edge” on Monday. “Now we have two funds, large-cap [NSPY] and small-cap [NIWM], which might be attempting to… capture this effect for investors.”

Lavine’s after-hours strategy places an emphasis large- and small-cap stocks. For expample, his firm’s NightShares 2000 ETF, for instance, is designed to trace the Russell 2000 within the wee hours.

He cites news flow as a key factor behind the “night effect.” It is a time, he contends, when investors often feel the necessity to meet up with the results of earnings, mergers and acquisitions.

Risk aversion at financial institutions also plays an enormous part in Lavine’s bullishness on the overnights.

‘They leave something on the table’

“People have this type of desire to go home flat sometimes in order that they can sleep at night,” Lavine said. “They leave something on the table for the opposite investors.”

Lavine expects the “night effect” and its related behavioral phenomena sticking around.

“Statistically, bear markets occur through the day session,” Lavine said. “It’s rather more frequent.” 

To this point, the ETFs are underperforming the Russell 2000 and Dow since their inception on June 28.

The NightShares 500 and NightShares 2000 ETFs are down 5.7% and 6.9%, respectively. Meanwhile, the Russell 2000 is off 3.6% and the Dow is off 2.6%.

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