In turbulent markets, low-volatility strategies are designed to dampen volatility and limit the impact of losses on client portfolios.
Low-volatility strategies can help investors maintain their target equity exposure more comfortably through choppy markets. Low-volatility strategies can reduce systematic risk in a portfolio. This is particularly true in the current environment, as many indicators point to economic weakness and recession risks.
“Even with the broad equity markets higher this year, many advisors are eager to reduce the risk of client portfolios,” Todd Rosenbluth, head of research at VettaFi, said.
Capturing the night effect is a way for advisors to enhance risk-adjusted returns and dampen volatility in client portfolios. The night effect is a persistent phenomenon whereby overnight markets have historically outperformed the daytime trading session on a risk-adjusted basis.
The NightShares 500 ETF (NSPY ) captures the night effect in an efficient and cost-effective way. NSPY offers exposure to the night performance of U.S. large-caps, comparable to the night session of the S&P 500.
See more: How to Use NightShares ETFs in Portfolios
The fund adds value to portfolios. It also seeks to capture 1.5x leveraged exposure to the overnight trading session, or 150% of overnight portfolio performance, for a single day — defined as the time between each NAV calculation.
How Did the Night Effect Work in 2022?
Last year’s volatile markets highlighted the power of the night effect in U.S. large-caps. If an investor were to simply buy the SPDR S&P 500 ETF Trust (SPY ) at close and sell at open every trading day, they would have lost 13.34%, outperforming buy-and-hold investors by nearly 5%.
The SPY Sharpe ratio is 0.54 for holding the fund from 2003 through 2022. Meanwhile, the night session Sharpe ratio is 0.62, while the day session Sharpe ratio is just 0.16.
For more news, information, and analysis, visit the Night Effect Channel.
