Northlake’s Style model shifted from value to growth for October. As a result, all client positions invested in this model have been shifted from the Russell 1000 Value (IWD) to the Russell 1000 Growth (IWF). The Market Cap model remains on a mid cap signal for October, so current client positions in the S&P 400 Mid Cap (MDY) will be maintained for at least another month.
The shift in the Style model to growth was primarily the result of the technical and trend indicators. These indicators picked up recent relative performance favoring growth stocks. The purpose of the technical and trend indicators is to add a dose of timeliness to the broader model, which relies more heavily on monthly indicators of economic activity. Stocks and themes often begin to move before the underlying data, making technical and trend indicators valuable in keeping the model signals timely.
The value signal had been in place since April 1st. Over the six month period, this proved to be an inaccurate signal as IWD gained just 10.0% against an increase of 13.3% for IWF. Most of the performance advantage for growth came in the last two months. This is what the technical and trend indicators are picking up.
The Market Cap model has performed better recently as MDY has produced a materially better return than the market. Last month, MDY was up more than 5% while the S&P 500 gained around 3%. For the just completed third quarter, MDY was up almost 8% versus a gain of just under 5% for the S&P 500. The Market Cap model could have done better as small cap was the best performing theme in the third quarter.
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’s regulatory filings can be found at www.sec.gov.