We are moving back to mid cap after three months of our large cap recommendation, while sticking with our neutral view on growth vs. value. For clients using Northlake’s Market Cap and Style strategies, the shift from large cap to mid cap triggers the sale of the S&P 500 (SPY) with proceeds reinvested in the S&P 400 Mid Cap (MDY). The change is consistent with our view that the economy will sustain growth well above pre-pandemic levels throughout 2022. This should lead to rotation toward small and mid cap stocks, which are more sensitive to macroeconomic trends. The shift in the Market Cap strategy is consistent with current positioning overweighting small and mid cap for clients using thematic ETF strategies.

Recent concerns about peaking economic and earnings growth and the prospect of accelerated Fed tapering and tightening has caused small and mid cap to lag the gains in the large cap S&P 500.  This makes the timing of this swap attractive and produced a positive result for the prior large cap recommendation. While in place, the previous recommendation saw SPY rise just over 2.0%, while MDY gained just under 0.5% and the small cap Russell 2000 (IWM) fall 1.3%. This is exactly the type of incremental performance we are trying to achieve with the Market Cap and Style strategies.

MDY is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. SPY is held in select Northlake client accounts.  Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov.