There are no changes to the signals from Northlake’s Market Cap and Style models for June.  Last month’s new recommendation of mid cap is in place for a second month, and growth remains preferred for the fifth consecutive month.  With no changes, client positions following the models and invested in the S&P 400 Mid Cap (MDY), the Russell 1000 Growth (IWF), and the S&P 500 Growth (SPYG) will be held at least one more month.

The current recommendations of mid cap and growth are complementary in the current market environment.  Given continued uncertainty about the intermediate and long-term impact of the economic shutdown, owning large cap growth stocks provides a bit of defense should the economy remain weak for longer than Wall Street currently expects.  Large cap growth companies like Apple, Google, and Facebook have strong balance sheets and appear to be secular winners from any long-term shifts in behavior due to the pandemic.  Mid cap indices have their share of growth stocks but MDY is not dominated by the massive market cap of the technology leaders so the index has more of a value tilt.  If the reopening of the U.S. economy goes well, small and mid cap value stocks that have under-performed the market for several years are due to catch up.  In fact, it is probably a good guess that for the market to continue significantly higher, leadership will have to shift toward these laggard themes. 

Since we made the swap from the large cap S&P 500 to the mid cap S&P 400, the market rally has broadened.  MDY is up 8.5% since we completed the trades on May 14^th vs. a gain of 4.5% for the S&P 500.  Capturing this incremental return is the goal of Northlake’s thematic model strategy. 

Factor changes underlying the latest signals were modest.  However, there was some movement.  The mid cap signal is stronger and could potentially shift to small cap next month.  The growth signal is weaker and the single month reading is firmly in neutral territory.  As a reminder, we use two month smoothing to reduce volatility of the model signals.

IWF, SPYG, and MDY 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