Both of Northlake’s thematic models sent new signals for August.  The Market Cap model shifted from large cap to mid cap, while the Style model moved from neutral back to growth.  As a result of the new signals, client positions in the S&P 500 (SPY) and Russell 1000 Value (IWD) were sold and proceeds reinvested into the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF), respectively.  The new mid cap signal replaces a four month run for large caps.  The new growth signal comes after two months at neutral for Style.

This month’s changes are driven mostly by model mechanics as opposed to underlying factors.  The signals are based on a two month average to smooth volatility.  This month there were minimal changes in underlying factors but dropping an old reading and adding a fresh one was enough to take each model just over its trigger level for change.

We had noted in previous updates that the large cap signal beginning in April was among the strongest the model had recorded since our data began in 1979.  The underlying model factors had gradually been pulling off the extreme reading and it was just enough in August to trigger a shift to mid cap.  With concerns rampant on trade, small and mid cap could benefit as investors seek out companies with less international exposure.  The shift back to growth could be timely following a large pullback in the FANG and related stocks following disappointing results from Netflix, Facebook, and Twitter.  Neither of these items has a specific model factor but the gist of the models is for a combination of factors to pick up on shifting market themes and trends.

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