There were no changes to Northlake’s Market Cap or Style model signals for May. The Market Cap model continues to favor mid caps and the Style model still prefers Value. The models have been stable for six months now leaving Northlake clients invested in the S&P 400 Mid Cap (MDY) and the Russell 1000 Value (IWD). The stability of the models reflects an economic recovery that is proceeding according to historical norms and low volatility in the major stock market averages.
As usual, there are some changes in the indicators that drive the models. Most notable, in the Style model, the value signal is stronger for May. This is the result of accelerating earnings growth for value stocks which leave them at historically cheap levels compared to growth stocks on the basis of P-E ratios. The economic recovery thus far has been kind to cyclical companies that comprise value indices thanks to big increases in basic materials prices driving commodity stocks and suppliers of products and services to commodity companies.
Last month’s mid cap and value signals did not provide value added to client portfolios. However, there was no material downside either. MDY and IWD each gained 2.6% last month, almost matching the 2.8% return for the benchmark S&P 500. Year to date, the Market Cap remains a winner, producing a return of over 12% against a gain of over 8% for the S&P 500. The Style model has matched the S&P 500 so far in 2011.
Disclosure: MDY 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 Capital Management, an SEC registered investment advisor.