There are no changes to Northlake’s models for September.  Mid cap remains favored by the Market Cap model, while the Style model is still reading neutral.  As a result, client positions following the models will remain invested in the S&P 400 Mid Cap (MDY), the Russell 1000 Growth (IWF), and the Russell 1000 Value (IWD).

The Style model looks like it could move off its neutral reading in favor of value in October.  The models use two month smoothing for their recommendations in order to reduce trading volatility and false signals.  The one month reading on the Style model is now slightly in value territory. Two indicators flipped from growth to value this month and 9 of the 14 total indicators now recommend value.  Both are designed to pick up a reversal in trend and are capturing better performance for value stocks over the past few months.  The rebound in oil and other commodities, improvement in emerging markets stocks, stability in the U.S. dollar, and gains for financial stocks in anticipation of the Federal Reserve raising rates all contribute to a more favorable environment for value stocks.

The Market Cap model saw one indicator move in each direction, small to large and large to small.  The mid cap reading looks pretty firm.  The indicator moving in favor of large cap is picking up on the loss of momentum in the market rally after August was the first down month since February.  Small stocks act best in rising markets.  The indicator moving in favor of small stocks is noting improvement in coincident economic indicators.  Small stocks are generally more cyclical and perform better in good economic times.

Mid Cap was a good call for August, gaining about one half of one percent against a slightly lower S&P 500.  Small cap would have been even better.  Value outperformed growth in August so a vaule reading rather than neutral would have been ideal.  Year-to-date, the Market Cap model is performing well, up 8%, or about 2% ahead of the S&P 500 benchmark.  The Style model has matched the S&P 500 so far this year.

MDY, IWD, 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.