There are no changes to the signals from Northlake’s Market Cap and Style models for April.  The Market Cap model continues to recommend Mid Cap and the style model remains on a Large Cap Growth signal.   The growth signal has now been in place for six months and the mid cap signal for five months.  Both signals’ length is consistent with the long-term historical average during the models’ actual use and back-testing.  With no changes to the signals, Northlake clients invested in the models will continue to hold the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF).

The mid cap and large cap growth signals each got slightly stronger for April.  Keep in mind that the model signals are driven by two month averages of the individual internal and external factors.  Within the Market Cap model, one internal indicator measuring market breadth flipped from small cap to large cap reflecting the down market during March.  Conversely, the external indicator looking at coincident economic indicators shifted from large cap to small cap.  This is an interesting indicator because it is forward-looking and contrarian.  The idea is that small caps perform best when the economy is weak and bottoming as the market looks ahead to the upturn that is the next phase of the economic cycle.  This indicator still sees the economy as having upside, especially after harsh winter weather, weak exports due to the strength in the dollar, and West Coast port issues led to weaker GDP growth in the first quarter.

The Style model moved further into large cap growth territory as two external indicators moved from value to growth.  The consumer vs. cyclical factor is picking up the better consumer environment driven by improved job and wage growth and lower oil prices.  This economic environment is a big boost for Northlake as our individual stock portfolio is focused on consumer discretionary industries such as media, entertainment, and leisure.  Another factor measuring net dividend yield is similarly picking up the better consumer environment as consumer stocks tend to dominate growth indices.

Performance of both models was good in March and since the current signals went into effect.  Given the efforts we made to review and revise the models, we are especially pleased to see multi-month runs of material performance for both models.

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.