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Remain Neutral on Growth/Value and Favor Mid Cap for June

There are no changes to the recommendations from Northlake’s Market Cap and Style models June.  The Market Cap model is recommending Mid Cap for a second consecutive month, while the Style model remains on a neutral reading for the third consecutive month.  With no changes to the signals, client positions following the Market Cap model will remain invested in the S&P 400 Mid Cap (MDY).  Assets following the Style model will remain evenly split between the Russell 1000 Growth (IWF) and the Russell 1000 Value (IWD).

There was minimal underlying movement in the Market Cap model with one indicator flipping form small to large cap offset by another indictor going from large to small.  Both the internal and external indicators in the model remain fairly evenly split on the small vs. large debate.  There is a little to read into the Market Cap model at the moment beyond the idea that the market, economic, and interest environment is generally sanguine.

There was more movement in Style model with four of the thirteen factors shifting toward value while one moved in favor of growth.  Internal and external indicators remain pretty evenly split between growth and value.  The general drift toward value is reflecting a couple of things.  First, the market has favored cyclical and commodity stocks since the February low.  Now, with the Federal Reserve indicating rates will go up this summer, financial stocks are performing better (financial stocks want higher rates so lending becomes more profitable).  This has helped the internal or technical and trend indicators shift toward value.  At the same time, despite an awful lot of worry on the part of investors, economic data remains mostly positive for the U.S.  This has allowed the external indicators to also move in favor of value.  The model is firmly in neutral territory for June but the underlying movement suggests the next change might be in favor of value.

The Market model performed well in May with Mid Cap (MDY) gaining approximately 2.3% vs. a gain of 1.7% for the S&P 500 (SPY).  IWF did a little better than IWD during May but the difference was marginal in terms of portfolio impact.

MDY, IWD, and IWF are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov. 

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