Another Month Favoring Mid-Caps and Value

Includes: IWD, MDY
by: Steve Birenberg, CFA

Despite great volatility surrounding events in Japan, Libya, the Middle East, and Europe, the stock market ended little changed in March. We held up very well during the volatility just after the earthquake and tsunami in Japan. As the market rallied into month end, small- and mid-cap stocks once again asserted leadership, helping our client portfolios finish a strong quarter.

Despite volatility in global events, there was no change to our Market Cap and Style model signals for April. The Market Cap model continues to recommend Mid-Cap, while the Style model still favors Value. The message being delivered by the models remains that the economic and stock market cycles are favorable but we are far enough along in the recovery to warrant having less than maximum risk. As a result of the latest model signals, client positions in the S&P 400 Mid-Cap (NYSEARCA:MDY) and the Russell 1000 Value (NYSEARCA:IWD) will be held.

Our models continue to send accurate and value added signals. Leading the way again for our clients in March was an accurate signal from the Market Cap model. During March, the Mid-Cap signal was quite profitable as MDY gained about 2% against a flat return for the S&P 500.

Mid-Cap was favored for the entire first quarter and produced an equally good result with MDY up over 9% versus a gain of less than 6% for the S&P 500. The Style model produced a neutral result in the first quarter, as the quarter long Value signal left client portfolios invested in IWD, which closely tracked the almost 6% gain in the S&P 500.

Disclosure: MDY and IWD are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, an SEC registered investment advisor.