Day Hagan Smart Core Equity Strategy Update April 2026
Summary
The DH Smart Core Equity Portfolio is designed to invest in companies that we believe have the potential to deliver excess returns through positive economic profitability, solid balance sheets (quality), meaningful cash generation (profitability), and trading at considerable margins of safety (valuation). We believe these factors will continue to provide rational opportunities for the foreseeable future.
Strategy Update
U.S. stocks faced a turbulent March, despite a strong rebound on the final trading day. Over the month, the S&P 500 index declined 5.1%, the Dow Jones Industrial Average dropped 5.4%, and the Nasdaq Composite fell 4.8%. Investors spent much of March grappling with higher energy costs, renewed inflationary pressures, and persistent concerns about slowing growth. The late-month rally on March 31—when the S&P 500 surged 2.9%, and the Nasdaq leaped 3.8%—was fueled by hopes of a de-escalation in the U.S.-Iran conflict. However, this rebound was insufficient to offset a month dominated by geopolitical shocks and pronounced sector rotation.
Sector performance underscored the market’s volatility. Energy emerged as the clear leader and, by month-end, was the only S&P 500 sector to post a gain, buoyed by a sharp spike in oil prices following disruptions near the Strait of Hormuz. This momentum extended to segments of the materials sector, particularly metals, mining, chemicals, and fertilizers. In contrast, health care endured its steepest monthly decline since 2009, while technology faced continued pressure for a fifth consecutive month as investors questioned AI valuations, the sustainability of capital expenditures, and the earnings vulnerability of high-multiple growth stocks amid rising rates and energy costs. Consumer-focused sectors also appeared more exposed, with gasoline prices surpassing $4 per gallon and threatening to cut into discretionary spending.
The economic environment was not recessionary, but it remained challenging. Manufacturing activity improved, with the ISM index rising to 52.7, and February retail sales increasing 0.6%. Nonetheless, these positive data points were overshadowed by rising input costs and ongoing supply chain disruptions. The Federal Reserve maintained interest rates at 3.50% to 3.75%, reinforcing its higher-for-longer stance amid persistent inflation risks. This mattered because earnings expectations stayed relatively robust.
Several key factors are currently influencing U.S. stock returns. The market is weighing slower yet still positive economic growth against a labor market that remains relatively strong. In March 2026, U.S. nonfarm payrolls rose by 178,000, and the unemployment rate was 4.3%. These figures suggest the economy is moderating from previous strength without signaling a severe downturn.
Inflation and interest rate expectations continue to play a pivotal role. In February, CPI increased 2.4% year over year, with core CPI at 2.5%. The Fed’s preferred PCE price index registered 2.8% in January. At its March 18, 2026, meeting, the Federal Reserve highlighted elevated economic uncertainty, and Chair Powell cited a median SEP projection for 2026 PCE inflation at 2.7%, remaining above the central bank’s target.
Earnings expectations remain supportive of equities. According to FactSet, the S&P 500 is projected to deliver 13.2% year-over-year earnings growth for Q1 2026 and 17.4% growth for the full year. The forward 12-month P/E ratio stands at 19.8—lower than year-end 2025 but still above the 10-year average.
Given these dynamics, opportunities could become more selective. Should inflation continue to moderate and earnings remain robust, equities are likely to stay supported. Conversely, if inflation persists or economic growth slows unexpectedly, market leadership may shift toward high-quality companies with resilient cash flows, pricing power, and reasonable valuations.
The current portfolio holdings reflect a balanced yet selective approach. We maintain a constructive outlook on equities, with a clear preference for high-quality companies, strong cash generation, and resilient business models that can withstand uneven economic growth. The portfolio’s cash allocation demonstrates our continued emphasis on optionality and stable income, rather than full exposure to macroeconomic uncertainty or reliance on a single economic outcome. This positioning reflects confidence in markets, tempered by prudent risk management.
The portfolio is tilted toward quality and profitability factors. Significant positions in Merck, Bristol Myers, Cisco, BNY Mellon, Kinder Morgan, National Fuel Gas, Realty Income, NNN, and Berkshire Hathaway represent a focus on companies with stable free cash flow and dividend support, which may demonstrate relative strength if interest rates remain elevated. Simultaneously, the portfolio includes growth-oriented holdings in sectors such as enterprise software, digital advertising, and AI-driven productivity, including Salesforce, Gartner, Accenture, Cognizant, Qualcomm, Adobe, Alphabet, Meta, Netflix, The Trade Desk, and Amazon. These selections reflect our view that enterprise spending and select technology themes are poised to remain relevant.
Valuation discipline remains central to our approach. Instead of focusing on the most crowded mega-cap growth opportunities, we emphasize "growth at a reasonable price" and invest in differentiated compounders such as Amdocs, Dropbox, Zoom, Omnicom, and Ulta Beauty. Consumer exposure is selective and favors brands with demonstrated pricing power, including Hershey, Constellation Brands, Lululemon, and Campbell’s.
Exposure to real assets—including energy, pipelines, and REITs—reflects our expectation that inflation will moderate but persist. We believe income-producing assets remain attractive in a volatile interest rate environment. An increased allocation to Novo Nordisk supports our view that secular growth opportunities in obesity and metabolic health are underrecognized.
In summary, the portfolio is positioned for a base-case scenario of slowing but positive economic growth, moderate recession risk, stabilized interest rates, and ongoing market leadership by high-quality businesses rather than more speculative investments.
On March 6, we purchased several software industry holdings that had experienced significant declines prior to our additions. Our analysis indicated that this group was approximately 40%* below its collective all-time closing highs on a portfolio-weighted basis, offering a potential margin of safety. We believe this valuation discount reflects investor skepticism toward durable, cash-generative software and platform businesses outside the market’s narrow leadership cohort. In our view, many of these companies remain under-owned and underappreciated, not because of impaired business models, but because market sentiment favors a select group of perceived AI beneficiaries and large-cap leaders.
Many of our holdings generate recurring revenue, have strong customer relationships, deliver robust free cash flow, and have potential for margin improvement, yet they continue to trade below historical valuation levels. If operating results remain stable or improve, these businesses may generate favorable returns without requiring aggressive assumptions. We believe a combination of earnings stability, renewed market confidence, and reasonable valuation normalization could provide upside potential.
Several of our portfolio companies operate in market segments often viewed as mature or overlooked, such as collaboration software, legacy enterprise platforms, workflow tools, customer engagement, and IT services. While these areas may not receive the same attention as disruptive technologies, they benefit from recurring revenue, high switching costs, long-term customer relationships, and strong free cash flow—all characteristics that can be especially valuable in a valuation-conscious environment.
We believe this environment creates a favorable setup. Should enterprise spending remain stable or improve, these businesses may deliver greater earnings durability and margin expansion than current valuations suggest. Many also have the potential to benefit from efficiency initiatives, product enhancements, and selective AI adoption without relying on overly optimistic assumptions. In our view, the combination of durable fundamentals, subdued expectations, and reasonable valuations presents an attractive risk-reward profile.
The portfolio sector allocations versus the Russell 1000 Value Index are as follows: Information Technology 25.2% vs. 13.0% benchmark, Healthcare 9.4% vs. 11.6%, Financials 10.5% vs. 19.5%, Consumer Discretionary 6.7% vs. 7.3%, Communication Services 9.1% vs. 8.0%, Industrials 0.0% vs. 13.3%, Consumer Staples 6.6% vs. 7.4%, Energy 7.3% vs. 7.6%, Utilities 5.0% vs. 4.5%, Materials 1.9% vs. 3.8%, and Real Estate 9.1% vs. 4.0%.
Relative to the Russell 1000 Value benchmark, the portfolio remains differentiated in several important respects. Most notably, the portfolio has a meaningfully higher allocation to Information Technology and Real Estate, while maintaining more modest exposure to Financials and no direct exposure to Industrials. We also hold somewhat higher exposure to Communication Services and Utilities, with Energy, Consumer Discretionary, and Consumer Staples closer to benchmark levels.
In our view, this positioning reflects a preference for select company-specific opportunities over broad factor replication. Within technology, our exposure is oriented toward businesses we believe offer durable customer relationships, recurring revenue, and attractive cash-flow characteristics, rather than simply mirroring the benchmark’s composition. The portfolio’s above-benchmark real estate exposure reflects our view that certain income-producing, hard-asset businesses may offer compelling risk-adjusted return potential, particularly where valuations remain reasonable and cash flows appear resilient.
By contrast, our lower exposure to Financials and lack of direct Industrials exposure indicate a more selective posture in areas where we believe benchmark weight alone does not necessarily imply attractive prospective returns. In addition, the portfolio maintains an elevated allocation to cash and short-duration U.S. Treasury exposure, which is outside the benchmark’s sector framework but provides liquidity, income, and flexibility.
Overall, relative to Russell 1000 Value, the portfolio reflects an active, security-selection-driven approach rather than an effort to resemble the index. The Smart Value portfolio strategy uses measures of economic profitability, balance sheet sustainability, cash flow generation, valuation, economic trends, liquidity, and market sentiment to make objective, rational decisions about how much capital to allocate and where to invest it.
If you have any questions or would like to discuss the portfolio in more detail, please do not hesitate to contact us directly.
Sincerely,
Donald L. Hagan, CFA®
Regan Teague, CFA®, CFP®
Disclosure: The aforementioned positions may change at any time.
Disclosure: *Note that individuals’ percentage gains relative to those mentioned in this report may differ slightly due to portfolio size and other factors. Returns are based on a representative account. The information contained herein is provided for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. The securities, instruments, or strategies described may not be suitable for all investors, and their value and income may fluctuate. Past performance is not indicative of future results, and there is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses.
This material is intended to provide general market commentary and should not be relied upon as individualized investment advice. Investors should consult with their financial professional before making any investment decisions based on this information.
Data and analysis are provided “as is” without warranty of any kind, either express or implied. Day Hagan Asset Management, its affiliates, employees, or third-party data providers shall not be liable for any loss sustained by any person relying on this information. All opinions and views expressed are subject to change without notice and may differ from those of other investment professionals within Day Hagan Asset Management or Ashton Thomas Private Wealth, LLC.
Accounts managed by Day Hagan Asset Management or its affiliates may hold positions in the securities discussed and may trade such securities without notice.
Day Hagan Asset Management is a division of and doing business as (DBA) Ashton Thomas Private Wealth, LLC, an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.
There is no guarantee that any investment strategy will achieve its objectives, generate dividends, or avoid losses.
This material is for educational purposes only. Further distribution is prohibited without prior permission. There is no guarantee that any investment strategy will achieve its objectives, generate dividends, or avoid losses.
Further distribution is prohibited without prior permission.
For more information, please contact us at:
Day Hagan Asset Management
1000 S. Tamiami Trail
Sarasota, FL 34236
Toll-Free: (800) 594-7930 | Office Phone: (941) 330-1702
Website: https://dayhagan.com or https://dhfunds.com
*Software group 3/5/2026 closing price against its all-time closing high: IT -69.0%, ZM -86.4%, TTD -78.6%, ADBE -59.1%, ACN -45.1%, CRM -44.8%, DBX -37.2%, QCOM -37.3%, DOX -26.0%, CTSH -25.9%, META -16.2%, AMZN -13.8%, GOOGL -12.4%, and CSCO -7.3%. Results are based on share price drawdowns from all-time closing highs to the closing price on March 5, 2026. The price-history sources used present historical stock prices and corporate action adjustments, such as splits, but this comparison does not include reinvested dividends and therefore should be viewed as a price return measure rather than a total return measure.
Definitions:
Consumer Price Index (CPI): A widely followed measure of inflation that tracks changes in the prices consumers pay for a basket of goods and services.
Core CPI: A version of CPI that excludes food and energy prices, often used to evaluate underlying inflation trends.
Dow Jones Industrial Average (DJIA): A price-weighted index of 30 large U.S. companies, commonly used as a measure of the U.S. stock market.
Earnings Growth: The rate at which a company’s or index’s profits increase over time.
Federal Reserve (Fed): The central bank of the United States, responsible for setting monetary policy and influencing interest rates and financial conditions.
Forward Price-to-Earnings (Forward P/E) Ratio: A valuation measure comparing a company’s or index’s current price to expected future earnings.
Free Cash Flow: Cash generated by a business after operating expenses and capital expenditures, often viewed as an indicator of financial strength.
ISM Index: A survey-based indicator published by the Institute for Supply Management that measures business activity, especially in manufacturing.
Market Capitalization: The total market value of a company’s outstanding shares, calculated as share price multiplied by shares outstanding.
Market Sentiment: The overall attitude of investors toward a market or security, which can influence prices beyond company fundamentals.
Nasdaq Composite: An index comprising thousands of companies listed on the Nasdaq exchange, with significant exposure to technology and growth-oriented businesses.
Nonfarm Payrolls: A monthly U.S. employment measure tracking the number of paid workers, excluding farm workers and certain other categories.
Personal Consumption Expenditures (PCE) Price Index: An inflation measure based on consumer spending patterns and closely watched by the Federal Reserve.
Price-to-Earnings (P/E) Ratio: A valuation measure comparing a company’s share price to its earnings per share.
Purchasing Managers’ Index (PMI): A survey-based indicator of business activity in manufacturing or services; readings above 50 generally indicate expansion, while readings below 50 indicate contraction.
Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-producing real estate and generally distributes most of its taxable income to shareholders.
Russell 1000 Value Index: An index measuring the performance of large- and mid-cap U.S. companies with value characteristics, such as lower relative valuations and more moderate growth expectations.
S&P 500 Index: A market-capitalization-weighted index of 500 leading U.S. companies, widely used as a benchmark for the broad U.S. equity market.
Sector: A broad category of the economy in which companies operate, such as Information Technology, Health Care, Financials, or Energy.
Sector Rotation: A shift in investor preference from one sector of the market to another, often driven by changes in economic expectations, interest rates, or market leadership.
U.S. Treasury Bill (T-Bill): A short-term debt security issued by the U.S. government, generally maturing in one year or less.