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December 02, 2013

Model Volatility Continues as Mid Cap Gains Favro

Northlake’s Market Cap model shifted back to Mid Cap after a brief, one month stop at large cap in November. As a result of the new signal, client positions in the Russell 2000 (IWM) were sold and the proceeds were reinvested in the S&P 400 mid Cap (MDY). There was no change to the Style model, which continues to recommend Growth over Value. Client holdings in the Russell 1000 Growth (IWF) will be held for at least another month.

Over much of this year I have mentioned that the models have been giving borderline recommendations and performance variance among the market cap and value themes has been low. The December swap from small cap to mid cap is another example as it took only a shift in one of the technical indicators measuring market breadth to cause the Market Cap model’s recommendation to shift. Overall, both models are reflecting a steadily trending market and sluggish but consistent growth in the domestic economy. This environment does not lead to a lot of variance among stocks whether it be Northlake’s themes or specific sectors or industries.

The one month stop at small cap did prove profitable as IWM gained almost 4% ahead of the 3% gain for the S&P 500 and a gain of only 1% for MDY. In the Style category, both growth and value kept up with the broad market and gained 3% for the month.

Results for both models on a year to date basis are very closely tracking the benchmark S&P 500. Given that both models have had their signals bounce around, this is indicative of the market environment mentioned above where a rising tide has lifted all boats about equally.

MDY 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 regulatory filings can be found at www.sec.gov.