There are no changes to the signals from Northlake’s Market Cap and Style models for June. The Market Cap model is recommending large cap for the second consecutive month and the Style model is again recommending growth. With no changes, client positions following the models will continue to be invested in the S&P 500 (SPY) and the Russell 1000 Growth (IWF).
There was a little movement in the indicators underlying each model. Unsurprisingly, two of the internal trend/technical indicators in the Market Cap model flipped from large cap to small cap. This reflects a bounce back month for small caps in June after a long stretch this year where small caps underperformed and gave back a lot of their excess post-election performance. The internal indicators look at trends over several months not on a day-to-day or week-to-week basis. Even if small caps lead performance again in July, we do not expect the model to flip to small or mid cap for August as the external indicators are unanimous in favor of large cap. This is a function of the slow and steady economic environment that favors larger companies.
The Style model saw one internal and one external indicator flip from growth to value but the overall reading remains on growth. There is a split in the Style model with the internal indicators favoring growth, while the external indicators prefer value. We expect the Style model may move towards a neutral or value recommendation over the next few months as the internal indicators begin to better reflect June’s weak performance for growth stocks.
The models lagged their benchmark in the first half of the year missing the early gains for small cap and growth. Fairly rapid rotation in themes returned to the market this year which is not ideal for the models given their focus on three to six month datapoints for the underlying indicators.
SPY 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.