There were no changes to the signals from Northlake’s Market Cap or Style models for June. The Market Cap model continues to recommend Mid Cap, while the Style model remains on a Value signal. As a result of the latest signals, there are no changes to the portion of Northlake client portfolios dedicated to the models and positions in the S&P 400 Mid Cap (MDY) and the Russell 1000 Value (IWD).
Underlying factors in the model had minimal movement. This is to be expected with the economy in slow but steady recovery and Federal Reserve policy on hold. Basically, the macroeconomic and interest rate drivers of the models are on hold leaving the factors underlying the models and the signals themselves unchanged.
The Style model saw no movement at all for June but the Market Cap model did see a couple of offsetting changes. The Yield Curve indicator moved in favor of small caps but was balanced by the Breadth indicator moving toward large caps. The yield curve has steepened recently which historically has been appositive for small caps as it usually is associated with accelerating economic growth. May’s selloff in stocks was led by small caps which move the breadth indicator to large cap. Weak breadth is often a forerunner of market weakness when large cap stocks typically hold up better.
Last month the models saved clients a little money in a down market. MDY and IWD both held up slightly better than the market but the savings were modest. Year to date, the Market Cap continues to perform quite well gaining over 11% vs. a rise of almost 7% for the S&P 500. The Style model is up about 7.5% in 2011, producing a small incremental return compared to the market.
,b>Disclosure: MDY and IWD are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, an SEC registered investment advisor.