The October model update results in moving to neutral on the growth vs value theme in the Style model.  As a result, we have completed the sale of one half of client positions in the Russell 1000 Growth (IWF) and reinvested the proceeds into the Russell 1000 Value (IWD).  We are sticking with the S&P 500 Mid Cap for a second consecutive month after moving from small cap to mid cap at the start of September.

Last month we expressed some near-term caution about the stock market outlook that reinforced the changes we made by swapping small cap and small cap growth exposure to mid cap and large cap growth exposure.  The market did correct in September with most major indices and sectors declining by a mid-single digit percent.  The latest trade to neutralize our bet on growth vs. value further reinforces our strategy to reduce risk heading into the election.  In this case, the risk reduction is achieved through diversification.

The factors driving the shift from growth to neutral were actually in place last month but we look at our models using two month averages to reduce volatility of the signals.  The key factors that drove the switch in October are improved relative performance of value stocks over the past few months and continued improvement in economic data as the economy has reopened.

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.