Northlake’s Style model shifted to a neutral signal after three months at value.  The change primarily reflects a pause in the Trump reflation trade during February that impacted the trend and technical indicators in the Style model that are designed to help model timeliness.  Given the new signal, half of client positions in the Russell 2000 Value (IWN) were shifted to the Russell 200 Growth (IWO).  There was no change in the small cap signal from the Market Cap model.  Small caps have now been favored for three consecutive months after over three years without a small cap signal.

As noted, the change to neutral for Style was driven by the internal indicators. Stocks Above 50 Day Moving Average flipped from Value to Growth and the updated scoring of the internal value indicators now is in growth territory.  The external indicators remain solidly in value territory, however, leading to the new neutral signal.  Northlake is a believer in the reflation economic scenario – modestly higher GDP and inflation and higher interest rates.  This is consistent with the slower moving signals from the Style model’s external indicators.

Over in the Market Cap model, one internal indicator measuring 200 day point changes moved from large cap to small cap, leaving the model reading in small cap territory, albeit not far over the line from mid cap.  Small and mid cap have been relative winners in the reflation trade so Northlake is happy to be sitting on in small cap even though large cap has been performing better so far in 2017.  We see large cap relative performance this year as more of a reversion to the mean than a larger statement on implications for the changes under way in Washington, DC and the economy.

IWM, IWN, and IWO 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.