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New ETF aims to achieve overnight returns in the stock market

(Bloomberg) — The tendency for U.S. stocks to post huge gains when the cash market closed overnight has left investors scratching their heads for years. Now in the works are exchange-traded funds that want to let investors capitalize on the phenomenon.

AlphaTrAI Funds Inc. intends to launch three exchange-traded funds, which use the same trading strategy for large-cap, mid-cap and small-cap stocks, during the hours of US market hours open and regular trading To capture the difference in returns. , according to a regulatory filing.

Simply put, owning these funds would be like buying shares in the closed and selling them at the open.

Several factors can explain why overnight action has produced better returns. Different merchant populations are waking up at different times. As the session begins, the liquidity decreases and continues to flow. According to Dave Lutz, managing director of JonesTrading, these overnight funds are likely to be noticed during the reporting season, when earnings are typically announced outside of regular trading hours.

“It is well documented that overnight sessions have performed well in regular hours,” he said, adding that such ETFs are “going to be a whirlwind during earnings season!”

Recently, however, news about the Ukraine war dominated the business overnight, contributing to significant losses during that time frame.

Read: For US traders, overnight stock futures turn a mirage

For Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, another issue could be high transaction costs, as the fund will adjust holdings every day. The filing did not list a proposed fee for the money.

Yet Balchunas still sees potential demand for such products because they fall into “packaged trade” ETFs that make more complex trades so that investors don’t have to execute them themselves.

“We’re now in an era where people are looking for creative hot-sauce-esque stuff to put on top of their boring portfolio,” he said. “The ETF industry never ceases to amaze in its creativity.”

AlphaTrAI Chief Investment Officer Max Gokhman declined to comment, citing regulatory hurdles.

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