« Earnings Updates: Apple, Google, and Qualcomm | Main | June Quarter Media Earnings Recap »

August 04, 2014

Shifting to Large Cap

After an eight month run favoring mid cap, Northlake’s Market Cap model shifted to large cap for August. As a result of this shift, client positions in the S&P 400 Mid Cap (MDY) have been sold and proceeds reinvested into the S&P 500 (MDY). There was no change this month to the Style mod, which is recommending value for the fifth straight month. Client position is the Russell 1000 Value (IWD) will be maintained for at least another month. Typical holding periods for Northlake’s models are around four to six months so the latest signals are consistent with historical experience.

The shift to large cap is primarily the result of the technical indicators flipping over completely from small cap to large cap. Small caps have really struggled this year even as the S&P 500 has produced a mid-single digit gain and set all-time highs. The Market Cap model appeared poised to shift to large cap over the past few months but small caps rallied in May and June. July, however, saw a terrible month for small caps which flipped the final technical and trend indicators. Beyond technical indicators, the model is favoring large caps due to valuation, foreign exchange, and yield curve factors.

There was little changed in the factors driving the Style model’s latest value signal. This signal remains quite strong with over 70% of the indicators favoring value.

The just closed mid cap signal was nicely profitable, gaining over 4%. Relative to alternatives, it was a mixed performance. The large cap S&P 500 benchmark gained over 6% during the holding period but the small cap Russell 2000 fell approximately 2%. The current value signal has been a push so far with both growth and value up a bit over 2% since the latest signal was initiated on April 1st.

SPY and IWD 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. SPY a net short position in the Entermedia Funds purely as a hedge. Entermedia is a long/short equity hedge fund focused on media, communications, leisure, and related technologies. Steve Birenberg is the portfolio manager of Entermedia, has personal monies invested in the funds, and controls Entermedia’s General Partners.

Posted by Steve Birenberg at August 4, 2014 11:47 AM in Models