For the first time since the summer of 2009, Northlake’s Style model is recommending Growth over Value. In last month’s commentary, I mentioned this shift was possible as there had been a steady drift in the underlying model factors toward growth. The signal for November changed to growth but is just over the borderline. It is a weak signal as the indicators are actually split pretty evenly, just leaning slightly toward growth. As a result of the new growth signal, all Northlake client positions in the Russell 1000 Value (IWD) were swapped into the Russell 1000 Growth (IWF).
The new growth signal is based on a combination of sluggish U.S. economic growth, the weakening dollar, and recent strength in technology stocks that has shifted stock market technical indicators toward growth.
There was no change in the Market Cap model this month, which continues to favor small caps. The signal is stronger than it was for October.
The long running value signal produced mixed results. For the entire 16 month period it was active, IWD produced a return of 27.8%, trailing the return on IWF by about 3.5%. However, for 2010 and the entire signal period, IWD produced a return that matched the S&P 500 benchmark for Northlake’s investment strategy.
The new small cap signal is off to a good start. In October, it’s first month, the Russell 2000 Small Cap (IWM) earned 4.2%, ahead of the S&P 500 at 3.8% and the previously owned S&P 400 Mid Cap (MDY) at 3.5%.
Disclosure: IWF is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve Birenberg is sole proprietor of Northlake, an SEC-registered investment advisor.