Northlake’s Market Capitalization and Style models held firm for February with Mid Cap and Value signals. The Market Cap model continued its drift toward large cap and is about as close as possible to shifting to large cap as it can get without actually hitting the trigger. The Style model held firmly in value mode with no movement at all from the prior month after two straight months of shifting very slightly toward growth….
Happy New Year to Northlake Clients and Friends!
Over the weekend, Northlake received the latest signals from its market capitalization and style models incorporating the latest economic, interest rate, and stock market indicators. There were no major changes as the the signals remain Mid Cap and Value. However, there is some underlying movement that is leading to client trading activity….
Both of the ETF’s currently owned by Northlake clients, the S&P 400 Midcap (MDY) and the Russell 2000 Value (IWN), went ex-dividend in the last week. This has a temporary negative impact on your portfolio values that will reverse in January when the payments are received….
Northlake’s Market Capitalization and Style models are unchanged once again in December, leaving in place the signals favoring Mid Cap and Value. Consequently, current client investments in the S&P 400 Mid Cap ETF (MDY) and the Russell 2000 Value ETF (IWN) will remain in place. Any cash reserves invested in ETFs in the coming month will also be placed in these two investments…..
There were no changes to Northlake’s model signals for November. The Market Capitalization Model continues to favor Mid Caps and the Style Model continues to favor Value. There was some movement toward Small Caps in the Market Capitalization model (but not enough to switch the signal), leaving it on the cusp of a shift from Mid Cap to Small Cap. For now, client accounts remain invested in the S&P 400 Mid Cap Index….
For October, Northlake’s Market Capitalization favors Mid Cap, a change from the prior two months when Large Cap was favored. Northlake’s Style Model for October remains firmly in Value mode….
No changes to the signals from Northlake’s Market Capitalization and Style models for September. The Market Cap model signal favors Large Cap. This model favored either small or mid cap from late 1999 through May of 2004. A Large Cap signal emerged in June but shifted back to Mid Cap in July. August and September now are both in the Large Cap camp, confirming a trend toward factors that favor Large Caps. In particular, the shift in the economy toward a more sustainable GDP growth rate favors Large Caps.
The Style Model remains firmly in Value territory as it has been since the spring of 2000 with only occasional shifts towards Growth. Value has performed very well in this time period, first as a defensive investment against the bear market, and then as the economy recovered and cyclical companies saw rapidly improving earnings prospects. Value is also favored when the economy is in a sustainable mode rather than an accelerating or topping mode.
The market staged a comback at the end of the month on low volume enabling the S&P 500 to eke out a small gain of about 3/10ths of 1%. Our models and special situations worked well last month with all four special situation stocks up and the August signals from both models working effectively.
Northlake’s Market Capitalization Model was sending a large cap signal for August. Consequently, we owned a position in the S&P 500 Spyder (SPY). SPY was up 0.2% for the month vs. no change for the S&P 400 Mid Cap ETF (MDY) and a decline of 1.5% for our small cap ETF proxy, IWM (Russell 2000).
Northlake’s Style Model also worked well in August. The model had a value signal, leading us to own a position in the Russell 3000 Value ETF (IWW). During August, IWW gained 1.0% vs. a return of -1.2% for the Russell 3000 Growth ETF (IWZ). August continues a good run for our Style Model. Since Northlake opened in June 2004, the model has had a value signal. During the three month period, our the value ETF, IWW, has gained 1.5% vs. a loss of over 6% for the growth ETF. Tech stocks have really struggled this summer which has favored the value signal.
Our special situations stocks,, which our outlined in the Research Samples link were all up in August. Central European Media Enterprises (CETV) was the big winner, gaining 19%. NTL, Inc. (NTLI) gained 4.2%, MB Financial (MBFI) gained 3.5%, and Motorola (MOT) gained 1.4%.
There was no news on CETV but my contacts suggested that a recent report by a well regarded Wall Street media analyst was gaining some traction. There also appears to be general interest in investment opportunities in Central and Eastern Europe. I concur with that and presently I am reviewing several other US listed stocks whose business is conducted in the region.
NTLI reported earnings at the start of August which were generally in line with expectations. The stock took a hard hit, however, in reponse to disappointing news from key competitor Sky. Competitive fears are the big issue for NTLI shares. NTLI rebounded later in the month as rumors of sale of the company’s tower business picked up steam.
MBFI reported solid earnings in August as well. No change to the thesis on this well run, high quality, Chicago bank. Upside from operations and future smaller acquisition exists and MBFI remains a preferred acquisition candidate for a larger bank wishing to expand in the Chicago market.
Little news in MOT during August. I feel the turnaround is in place and investors will reward the shares as new mobile phone designs are shipped on time over the balance of 2004.
Overall, a good month for Northlake’s key investments.