After seven months signaling value, Northlake’s Style model shifted to growth for September. There were no changes in any of the underlying factors this month. Rather, the two month rolling average calculation shifted to growth when June’s value bias was dropped and August data confirmed the shift to growth first picked up in July. As a result of the new growth signal, I sold all client positions in the Russell 1000 Value Index (IWD) and the Russell 3000 Value (IWW) and swapped dollar for dollar into the Russell 1000 Growth Index (IWF).
There were no changes to Northlake’s Market Cap model for September, which for the third consecutive month is providing a large cap signal. The large cap signal remains strong and accounts for the use of the large cap Russell 1000 in the implementation of the new Style signal…..

For September, five of the nine factors that make up the Style model favored growth, making it two straight months with a majority for growth. As recently as June, only three of the nine factors in the Style model favored growth. The shift to a growth signal is being driven by factors picking up slowing economic growth, a weak dollar, cheap relative valuation, better technical action for growth stocks, and unusually narrow credit spreads. While I never second guess the models, I personally concur with the slowing growth scenario so this shift is comfortable for me.
I should note that the growth signal is a weak one at the moment. The movement of just a single factor next month could shift the model back to value mode. While that could happen, the average length of a signal from this model has been seven months based on backtesting to 1980.
By coincidence, the prior value signal was in place for seven months, and it proved to be a very accurate signal. Looking at the Russell Growth and Value ETFs, from February thru August, the Russell 3000 Value (IWW) gained 5.5% against a loss of 2.2% for the Russell 3000 Growth (IWZ). The story was the same in the narrower indices as the Russell 1000 Value (IWD) gained 5.9% against a loss of 1.7% for the Russell 1000 Growth (IWF) and the Russell 2000 Value (IWN) gained 3.6% against a loss of 5.1% for the Russell 2000 Growth (IWO). Northlake’s benchmark is the S&P 500, which gained 2.5% during this same period, so no matter how it was implemented the value signal proved to be a good one.