There are no changes to the recommendations from Northlake’s Market Cap and Style models for January.  The Market Cap model continues to favor mid cap and the Style model still likes large cap growth.  With no changes to the recommendations for January, client positions following Northlake models will be  maintained in the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF).  There were some small shifts in the underlying indicator of the models.  The Market Cap model moved slightly more into mid cap territory, while the Style model took a step toward value.

 

The shifts in the Market Cap model were mostly in the internal indicators that measure stock market technicals.  Reflecting a couple of months of improved performance for small cap stocks after they lagged for most of 2014, two of the internal indicators shifted their recommendation toward small caps.  There were a couple of shifts in external indicators for the Market Cap model but they offset each with one moving in favor of large caps and one in favor of small caps.

 

The Style model also saw two internal indicators shift, in this case, in favor of value.  Value stocks performed well in December causing price momentum based indicators to move from the growth to value column.  There was also one shift in favor of value in the external indicators.  A measure of dividend yield that compares yields on growth stocks versus value stocks moved in favor of value.  With the newly expanded options for the Style model that include a neutral recommendation, the shift toward value, if it continues, would likely lead first to a neutral reading.  In that case, we would split client funds dedicated to the Style model between a growth fund and a value fund.

 

During December the models put in a split decision.  The new mid cap reading proved accurate as mid caps produced a positive return versus a decline in the benchmark S&P 500.  The growth signal, which is now two months old, was off base last month as growth underperformed value, reversing the favorable performance in November when the model first shifted in favor of growth.

 

<i>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.  </i>