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October 17, 2005

Swapping Some Small Cap For Large Cap

Although I rarely make a trade intra-month in Northlake's model driven ETF investments, last Wednesday morning I moved half of the small cap value exposure to large cap value. This resulted in a swap of the Russell 2000 Value ETF (IWN) into the Russell 1000 Value ETF (IWD)....

....My rationale was to reduce the aggressiveness of client portfolios by moving toward a lower beta (less volatile) exposure to value. Northlake's Market Cap exposure is already in Mid Caps and with half of the Style exposure in Small Cap Value I just felt there too much exposure in higher risk small and mid caps given their clearly weakening relative strength trend.

ETFs driven off Northlake's Market Cap and Style rotation strategy make up 40% to 80% of client portfolios depending on individual goals and objectives. Prior to this trade, 30% to 60% of client assets were invested in small or mid cap ETFs. This trade moves approximately 5-10% of small cap exposure to large caps. I still look for a yearend rally but with rising risks and the poor market action so far in October, I felt it was prudent to reduce the aggressiveness of client portfolios.

If the market catches begins to rally, I expect small and mid caps to regain some lost ground relative to large caps. If that occurs, client portfolios still have plenty of small and mid exposure to participate in the rally. I hope and expect that to happen sometime this month leading to a yearly close near annual highs.

Posted by Steve Birenberg at October 17, 2005 09:14 AM in Models