We're Sticking With Small Caps and Value for March

by: Steve Birenberg, CFA

There were no changes to Northlake's models for March. The Market Cap model is sending a small cap signal for the second consecutive month and the Style model remains on value, as it has been since July 2009. As a result of the latest signals, all client positions in the Russell 2000 (NYSEARCA:IWM) and the Russell 1000 (NYSEARCA:IWD) tracking the models will be maintained.

Underlying movement in the model indicators was modest. The small cap signal is slightly stronger this month but still registers as a weak signal. The only factor to shift was NYSE Breadth which moved from large cap to small cap reflecting the broad market gains over the past six months. The value signal weakened but remains firm. Two factors, Insider Activity and Trend Indicators moved from Value to Neutral. Overall, the models continue to suggest a transitional market and economy, moving from the oversold, cyclical rally phase but struggling to gain the consistent growth in an economic and market expansion.

In February, the Market Cap model sent an accurate signal while the Style model performed was neutral. Small caps gained over 4% in February, ahead of the 3% gain for the S&P 500. Both value and growth gained a bit over 3%.

So far in 2010, both models have produced a return better than the market with each gaining about 1% vs. a decline of just under 1% for the S&P 500.

Disclosure: IWM and IWD are widely held by clients of Northlake Capital Management, LLC including in Steve Birenberg's personal accounts. IWM is a hedge in the Entermedia Funds. Steve Birenberg is co-manager of the Entermedia Funds, owns a portion of the Funds' investment management company, and has personal monies invested in the Funds.