It was a strong second quarter for the Day Hagan Logix Tactical Dividend strategy. The strategy returned +5.02 percent* during the quarter versus its benchmark, the Russell 1000 Value index, at +1.17 percent (and the S&P 500 at +3.43 percent); all numbers are total return and gross of fees. Day Hagan Logix Tactical Dividend is now outperforming its benchmark over the last 1, 5 and 10 years, as well as since inception, with meaningfully lower volatility (historical beta of 0.61).

Our energy and retail industry holdings led the quarter’s performance. Our most recent industry purchase, Specialized REITs, is also showing attractive absolute and relative performance in Q2 and since purchase in early March. As a point of differentiation versus our Russell 1000 Value benchmark, all three of these industries are notably overweight the benchmark’s exposure. These overweights helped us not only from a broad industry/sector perspective but also in terms of our specific stock selection. In other words, we were in the right sectors while holding attractive stocks within those sectors. Conversely, financial services had a negative impact on Russell 1000 Value benchmark performance during the second quarter. Based on our valuation methodology and process, we currently have no exposure to financials in the portfolio, which led to additional relative outperformance.

In the second half of June, we added a new holding to the portfolio within our Food/Beverage Processing industry grouping, The Coca-Cola Company (KO), at what we view as an attractive risk-return entry point based on our objective methodology. While KO is still perceived simplistically as a carbonated soft drink company, it is the largest producer and marketer of beverages in the world, with 500 brand licenses (including waters, juices, teas, coffee, dairy, health and energy drinks) and a massive distribution network. Its recent move, now completed, to refranchise North American bottlers is increasing returns on invested capital by reducing the company’s capital intensity. With the majority of revenues now coming from outside the U.S., we believe the growth profile is increasingly attractive and skewed towards international markets. The company has a very healthy balance sheet ($21B in cash, low debt levels) and continues to be shareholder-friendly, all facets that enable the company to meet our stringent screening criteria. More recently, concerns over the current trade environment led to further research and discussions with the company. The vast majority of the ingredients in KO products are locally sourced. Further, only 7 percent of the cost of KO retail products are from aluminum (cans), and with the refranchising of bottlers, the bottlers absorb the cost, not the company. In effect, the consequence of tariffs is negligible for KO.

The strong performance during the quarter came despite an Amazon deal announcement at the end of June that led to what we felt was a meaningful overreaction in our Medical Distributors holdings. At this point, we are used to the noise that anything Amazon-related seems to produce in Medical Distributors and other industries, airfreight & logistics and retail among them. Generally speaking, although there is no question that Amazon is changing the paradigm in many industries, we believe last week’s deal was misinterpreted and exaggerated in terms of its significance (not unlike, in recent memory, the Amazon purchase of Whole Foods impacting Costco and Walmart in kneejerk fashion; different sector, same idea). Amazon’s announced acquisition of PillPack last week is relatively small, roughly $1 billion for a company with about $100 million in 2017 revenue. By comparison, our “Big 3” medical distributor holdings have combined revenues of over $500 billion.

PillPack packages and direct ships premade doses of medications, at this point largely serving chronic-disease patients. While it is a foothold for Amazon in the broader space, what PillPack does represents a very small percentage of the overall pharmaceutical market and does not appear to have any unique technology or barriers to entry. Most significantly, we view this as an indication that Amazon is interested in the mail-order pharmacy business, not the broader pharmaceutical wholesaling market. Our current holdings have long-term, entrenched relationships with health systems and other commercial enterprises. We do not view the PillPack deal as a real threat to this market. We continue to believe the names we hold have meaningful upside and currently incorporate unrealistically negative scenarios into their stock prices. While the industry has always been reactive and volatile to new information, we have historically received attractive total returns by being patient and letting company results over time speak louder than perception. Meanwhile, on the same day as the Amazon announcement, our McKesson portfolio holding (one of the Big 3 referenced above) raised their fiscal Q1 (period ending June 30) earnings guidance meaningfully above analyst consensus.

Finally, as stated earlier, we have outperformed our benchmark over the past 1-, 5- and 10-year periods (and in this most recent quarter*) during a time when value investing was out of favor relative to growth. Even so, our GIPS compliant returns show that the Day Hagan Logix Tactical Dividend strategy has bettered the performance of the S&P 500 Total Return index over the past 10 years—a time period that many investors consider to be a growth-led market.

In other words, we are clearly differentiated from other so-called value managers in that we’ve captured positive upside while managing downside risk during a growth-led market. We do it by maintaining a laser focus on companies with pristine balance sheets, solid operating businesses, positive and increasing returns on their capital structures, and managing risk. Taken together, our more-than-16-year track record of rational returns with rational risk continues.

Currently, there are ever-increasing signs that value is gaining traction again and we believe that this will meaningfully benefit our portfolio for the foreseeable future.

The S&P 500’s dependence on the FAANG stocks (Facebook, Amazon, Apple, Netflix and Alphabet/Google) to generate returns does not seem sustainable nor does, using more traditional valuation metrics, the current disparity in growth versus value P/E ratios (the largest since the Internet bubble). In addition, looking at five-year rolling data, the underperformance of value versus growth has reached extreme levels. Data from French-Fama suggests that this is the longest growth rally in history. So while we seem primed for a reversal, the question is when. While no one can definitively answer that question, regardless of when it happens, we continue to be well positioned in the interim to generate attractive absolute and relative total returns.

Join Rob Herman and Donald Hagan, CFA, for a detailed review of the current portfolio and their expectations for the second half of 2018 in the upcoming Day Hagan Tactical Dividend Strategy Webinar, on Thursday, July 12 at 3 PM EST. Register at 

We look forward to connecting with you at your convenience. Please don’t hesitate to be in touch with comments or questions.


  • Robert Herman
  • Donald L. Hagan, CFA
  • Jeffrey Palmer
  • Arthur S. Day

PDF copy of the article: Day Hagan Logix Tactical Dividend Strategy Update July 2018 (PDF)

Day Hagan Logix Tactical Dividend (DHLTD) performance through 6/30/2018. Returns greater than one year are annualized returns.

      DHLTD Gross      DHLTD Net       Russell 1000 Value Index TR      
Q2 2018    +5.02%     +4.86%     +1.17%     
1-Year      +10.98%      +10.38%      +6.77%      
5-year       +10.82%       +10.14%       +10.34%      
10-year      +12.54%       +11.67%       +8.49%      

The S&P 500 Index is based on the market capitalizations of 500 large U.S. companies having common stock listed on the NYSE or NASDAQ. The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. Indexes are unmanaged, fully invested, and cannot be invested in directly.

Disclosure: *Note that individuals’ percentage gains relative to those mentioned in this report may differ slightly due to portfolio size and other factors. The data and analysis contained herein are provided "as is" and without warranty of any kind, either expressed or implied. Day Hagan Logix (DH Logix), any of its affiliates or employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any DH Logix literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DH Logix, accounts that DH Logix or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. DH Logix uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. When evaluating the results of prior DH Logix recommendations or DH Logix performance rankings, one should also consider that DH Logix may modify the methods it uses to evaluate investment opportunities from time to time, that model results do not impute or show the compounded adverse effect of transactions costs or management fees or reflect actual investment results, that some model results do not reflect actual historical recommendations, and that investment models are necessarily constructed with the benefit of hindsight. For this and for many other reasons, the performance of DH Logix’s past recommendations and model results are not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.


Day Hagan Logix is registered as an investment adviser with the United States Securities and Exchange Commission. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Day Hagan Logix claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Day Hagan Logix has been independently verified for the periods April 30, 2002 through December 31, 2016. A copy of the verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. 2 Calculation Methodology: Pure gross of fees returns are calculated gross of management, custodial fees and transaction costs and are shown as supplemental information. Net of fees returns are calculated net of actual management fees, transaction costs and gross of custodian (trust) fees. Net of fees returns for wrap accounts are calculated net of management fees, transaction costs and all administrative fees charged directly to the client by the broker-dealer.