Media Talk

Shifting to Small Cap for November

Northlake’s Market Cap shifted to small cap for November.  The Style model still recommends growth.  Given these fresh signals, client positions following the Market Cap model will sell holdings in the S&P 400 Mid Cap (MDY) and purchase the Russell 2000 (IWM).  Although the growth signal is unchanged, the shift to small cap in the Market Cap model triggers a move from large cap growth to small cap growth.  As a result, client positions in the Russell 1000 Growth (IWF) will be sold and proceeds reinvested into the Russell 2000 Growth (IWO).

The shift to small cap is driven by internal indicators in the Market Cap model.  All eight internal indicators now favor small cap after three changed from large to small for November.  This change is primarily driven by better performance for small cap stocks over the last three to six months shifting the trend and technical indicators in their favor.  The external indicators offer a mixed picture with one change in favor of small cap this month.  Generally, the external indicators are picking up steady improvement in economic growth and continued strength in corporate earnings.  These factors usually favor small caps.

The Style model remains pretty firmly on growth.  One indicator in each of the internal and external groupings moved from value to growth for November.  Growth stocks have been performing very well with occasional one or two day swoons since summer.  The latest earnings reports form Amazon, Google, and Microsoft led to a surge in growth stocks in late October pushing the trend and technical indicators further in favor of growth.  The external indicators remain mixed as better economic and rising commodity prices favor value, while earnings growth and a weaker dollar support growth.

Last month the models did a pretty good job.  The growth signal was excellent as IWF rose about 4% versus a gain of 2% for the S&P 500.  The mid cap signal matched the benchmark S&P 500 with MDY up 2%.

IWM and IWO 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.  IWM is used as a hedging vehicle in the Entermedia Fund.  Entermedia is along/short equity hedge fund managed and controlled by Steve Birenberg


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