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April 02, 2010

Small Cap and Value Again in April

There are no changes to Northlake's Market Cap and Style models for April. The Market Cap model is recommending small cap for the third straight month, while the Style model continues to signal value, as it has since July 2009. Northlake client assets invested with the models continue to own the Russell 2000 (IWM) and the Russell 1000 Value (IWD).

There was minimal change in the model factors this month. The Market Cap model has the same reading as the prior month, which I would characterize as moderately strong small cap signal. None of the underlying factors changed for April. The Market Cap model continues to reflect a recovering economy but the small cap signal emanates more from sentiment and technical factors that suggest investors are willing to accept more risk.

The Style model had a bit of movement for April with the trend indicators moving from neutral to favoring value. This reflects the strong performance of value stocks so far this year, which are well ahead of the S&P 500 and their growth counterparts. The Style model also reflects a recovering economy but one that has moved beyond the sharp cyclical upturn normal seen at turning points.

Both models are performing well so far in 2010 with returns of greater than 8 % vs. a gain of just under 5% for the S&P 500. The two month old small cap signal has returned about 13% when the S&P 500 is up approximately 9%. Since July 2009, the value signal has gained almost 28% vs. 26% for the growth index and 27% for the S&P 500.

Disclosure: IWM and IWD are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg's personal accounts. IWM is a short position in the Entermedia Funds, solely as a hedge against a long portfolio. the Entermedia Funds do not use Northlake's models. Steve Birenberg is co-manager and co-owner of the Entermedia Funds and has personal monies invested in the Funds.

Posted by Steve Birenberg at April 2, 2010 11:29 AM in Models