Day Hagan Smart Core Equity Strategy Update February 2026
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Day Hagan Smart Core Equity Strategy Update February 2026 (pdf)
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
The U.S. equity markets opened 2026 with a constructive tone, characterized by a meaningful shift in leadership away from mega-cap technology. While major benchmarks posted modest monthly gains, small-cap and mid-cap stocks significantly outpaced their large-cap counterparts, signaling improved market breadth. Value-oriented sectors, particularly energy and materials, outperformed growth as investors recalibrated for a durable economic cycle. Despite late-month volatility triggered by corporate earnings divergence and geopolitical uncertainty, the overall market trend remained positive through January.
During the month, the S&P 500 Equal Weight Index markedly outperformed the market-capitalization-weighted S&P 500, representing a meaningful shift away from the extreme mega-cap concentration seen in prior years and signaling broader market participation. January’s equal-weight outperformance reverses a multi-year trend in which the cap-weighted S&P 500 had outpaced its equal-weight counterpart by a historic 32% over three years. The shift reflects a normalization of valuations, as investors rotated away from the roughly 30% premium in mega-cap tech stocks toward more attractive risk-reward opportunities in cyclical and defensive sectors.
By rotating into Energy, Materials, and Consumer Staples, market participants effectively distributed capital across the index's "bottom 400" names, driving breadth to its healthiest levels in years. This violent re-rating suggests that while the AI-driven tech leaders have cooled, the broader economy remains resilient enough to support a more balanced, participation-heavy market structure.
Value equities outperformed growth in January for the third month in a row, reflecting a market environment that favored cash flow durability, profitability, and balance sheet strength over long-duration growth assumptions. Higher real rates and lingering uncertainty around the pace of economic normalization encouraged investors to prioritize near-term earnings visibility and capital discipline.
Companies with consistent free cash flow generation, reasonable valuations, and manageable leverage benefited as market leadership broadened beyond a narrow set of growth-driven names. This rotation supported strategies emphasizing fundamental resilience, as businesses with strong balance sheets were better positioned to sustain dividends, reinvest prudently, and navigate volatility. Importantly, value’s outperformance was less about macro timing and more about fundamentals being rewarded, as investors reassessed risk-adjusted returns. While growth remains a key component of diversified portfolios, January’s performance underscored how value-oriented approaches can provide ballast during periods when markets refocus on profitability, cash returns, and financial flexibility.
Several of our holdings have reported earnings since the beginning of the year. Across the combined holdings, earnings results reflected a constructive fundamental backdrop, with most companies delivering earnings and revenue above consensus expectations. Performance was driven by stable demand, pricing discipline, operating leverage, and effective cost management, even as macro and consumer conditions remained mixed.
Management commentary broadly emphasized execution, balance-sheet strength, and long-term strategic investment rather than near-term acceleration. Guidance was largely reaffirmed or modestly constructive, reinforcing confidence in cash flow durability and earnings visibility. Technology and communication services benefited from AI-driven monetization and scale advantages, while financials and consumer staples provided stability through diversified revenue streams. Select areas of margin pressure were largely associated with deliberate investment spending. Overall, the earnings season supported a favorable view of the portfolio's underlying fundamentals, highlighting disciplined capital allocation.
Below is a summary of companies that have reported earnings so far this year:
STZ — Constellation Brands (Reported January 7, 2026)
EPS: ~+5–8% vs. Consensus
Revenue: ~+1–2% vs. Consensus
Constellation Brands reported quarterly results that exceeded earnings expectations and delivered revenue modestly above consensus, supported by pricing discipline and favorable brand mix within its beer portfolio. Management cited stable consumer demand for core brands and ongoing cost controls as key contributors to margin stability. While certain discretionary spending trends remain uneven, shipment volumes and execution were consistent with internal expectations. The company reaffirmed its full-year guidance, reflecting confidence in cash flow generation, capital allocation priorities, and balance-sheet flexibility. Management commentary emphasized operational discipline and brand strength as important offsets to near-term macro uncertainty. Overall, results reflected steady execution rather than acceleration, with performance aligned to long-term strategic objectives. Market reaction: Shares were modestly higher following the release, reflecting relief around guidance stability.
BK — Bank of New York Mellon (Reported January 13, 2026)
EPS: ~+4–6% vs. Consensus
Revenue: ~+1% vs. Consensus
Bank of New York Mellon reported earnings above expectations, supported by resilient fee income and stable net interest revenue. Revenue modestly exceeded consensus, benefiting from higher market values and steady client activity. Management highlighted progress on efficiency initiatives, technology investments, and disciplined expense management. Guidance commentary reflected cautious optimism, emphasizing balance-sheet strength, capital return priorities, and diversified revenue streams. While macro uncertainty remains a consideration, management expressed confidence in the firm’s ability to deliver consistent earnings through varying market environments. Overall, results reinforced the defensive characteristics of the business model rather than signaling a shift in growth trajectory. Market reaction: Shares were modestly positive, reflecting steady results and constructive commentary.
BLK — BlackRock (Reported January 15, 2026)
EPS: ~+5–7% vs. Consensus
Revenue: ~+2% vs. Consensus
BlackRock delivered a strong quarter, beating both earnings and revenue expectations as higher markets and positive net inflows lifted average assets under management. Management cited continued demand for ETFs, fixed income, and alternative strategies. Operating leverage and expense discipline contributed to margin performance. Guidance commentary emphasized confidence in long-term organic growth driven by global distribution, technology offerings, and private markets, while acknowledging normal market sensitivity. Management reaffirmed its strategic focus on scalable growth and capital returns. Results reflected solid execution rather than outsized market-driven volatility. Market reaction: Shares traded higher following the report, supported by inflows and margin strength.
NFLX — Netflix (Reported January 20, 2026)
EPS: ~+4–6% vs. Consensus
Revenue: ~+1–2% vs. Consensus
Netflix exceeded expectations on both earnings and revenue, driven by subscriber growth, improving monetization, and continued progress in advertising. Management highlighted engagement trends, pricing discipline, and expansion of the ad-supported tier. While near-term guidance was conservative, full-year growth expectations were reaffirmed, reflecting confidence in margin expansion as advertising scales. The commentary emphasized balancing content investment with profitability rather than prioritizing rapid subscriber growth. Overall, the results supported the company’s evolving business model and its focus on sustainable returns. Market reaction: Shares were mixed to modestly higher, with strong results offsetting cautious near-term guidance.
KMI — Kinder Morgan (Reported January 21, 2026)
EPS: ~+3–5% vs. Consensus
Revenue: In line to slightly above (~0–1%)
Kinder Morgan reported earnings above expectations, supported by strong operational execution and stable pipeline volumes. Revenue performance was consistent with expectations, reflecting the company’s fee-based model. Management emphasized robust cash flow generation, capital discipline, and progress on growth projects. Guidance was reaffirmed, signaling confidence in steady earnings growth and dividend sustainability. Commentary highlighted balance-sheet strength and limited commodity exposure as key risk mitigants. Overall, results reinforced the predictability of Kinder Morgan’s cash flows rather than signaling material growth acceleration. Market reaction: Shares were modestly higher, reflecting confidence in cash flow and dividend outlook.
META — Meta Platforms (Reported January 28, 2026)
EPS: ~+8–12% vs. Consensus
Revenue: ~+2–3% vs. Consensus
Meta delivered earnings and revenue above expectations, driven by resilient advertising demand and improved engagement across its platforms. Management highlighted AI-driven enhancements to ad performance as a key contributor. Margins benefited from cost discipline, even as investment spending increased. Guidance was constructive, with management signaling continued revenue growth alongside elevated capital expenditures tied to AI infrastructure. Commentary emphasized long-term monetization opportunities rather than near-term margin expansion. Market reaction: Shares rose following the release of strong earnings and revenue beats.
CVX — Chevron (Reported January 30, 2026)
EPS: ~+6–9% vs. Consensus
Revenue: ~+2% vs. Consensus
Chevron exceeded earnings expectations, supported by strong upstream execution and disciplined cost control. Revenue trends were solid despite a mixed commodity price environment. Management reaffirmed capital allocation priorities, including dividends and buybacks, and maintained guidance. Commentary emphasized balance-sheet strength and operational consistency rather than growth acceleration. Overall, results reinforced Chevron’s ability to generate durable cash flows across cycles. Market reaction: Shares were modestly positive, reflecting earnings strength and dividend stability.
GOOGL — Alphabet (Reported February 4, 2026)
EPS: ~+10–15% vs. Consensus
Revenue: ~+2–3% vs. Consensus
Alphabet reported earnings and revenue above expectations, driven by strength in Search and improving profitability in Google Cloud. Management emphasized AI-driven product enhancements while outlining elevated capital spending plans. Guidance reflected confidence in long-term growth while acknowledging near-term margin variability tied to investment levels. Operating discipline remained evident. Results reinforced Alphabet’s scale advantages and long-term strategic positioning. Market reaction: Shares moved higher on earnings strength despite higher capex commentary.
HSY — The Hershey Company (Reported February 5, 2026)
EPS: ~+4–6% vs. Consensus
Revenue: ~+1–2% vs. Consensus
Hershey exceeded expectations on earnings and revenue, supported by pricing actions and stable category demand. Management highlighted margin resilience despite input cost pressures and reaffirmed guidance. Commentary emphasized brand strength and disciplined execution rather than volume acceleration. Results reflected the business's defensive nature amid a cautious consumer backdrop. Market reaction: Shares were modestly higher following the earnings beat and reaffirmed outlook.
AMZN — Amazon (Reported February 5, 2026)
EPS: ~-5% to -10% vs. Consensus (investment-driven capex projections were higher than expected)
Revenue: ~+1–2% vs. Consensus
Amazon reported revenue above expectations, driven by growth in AWS, advertising, and services. Earnings reflected elevated investment spending, which management framed as strategic. Guidance emphasized continued revenue growth with near-term margin variability. Commentary focused on long-term operating leverage as investments scale. Results underscored durable growth drivers rather than near-term profitability inflection. Market reaction: Shares were down as strong revenue growth was balanced against investment intensity.
Overall, the portfolio exhibits a combination of cyclical and defensive economic sensitivities, reflecting its diversified sector composition. Exposure to Consumer Discretionary, Industrials, and Energy positions the portfolio to benefit from economic expansion and increased consumer and business spending, as companies in these sectors are sensitive to GDP growth, employment trends, and consumer confidence.
Within Consumer Discretionary, holdings in apparel, retail, and leisure demonstrate responsiveness to consumer sentiment and discretionary income, while industrials capture activity tied to capital investment and construction. Energy positions, including upstream, midstream, and integrated operators, remain sensitive to commodity prices and broader economic demand. Conversely, defensive allocations in Consumer Staples, Health Care, and Utilities provide stability during economic slowdowns or market volatility. Staples holdings generate predictable cash flows from essential products, while pharmaceuticals and utilities offer resilient demand and regulated revenue streams.
Additionally, portfolio exposure to Communication Services and Information Technology carries sensitivity to digital adoption, advertising cycles, and enterprise IT spending. Overall, the portfolio balances growth leverage with defensive anchors, providing moderate cyclical participation while preserving downside resilience through high-quality, cash-flow-generative, and balance-sheet-strong companies.
The portfolio’s most significant sector allocations are to Financials, Information Technology, Communication Services, Real Estate, and Consumer Discretionary. Our target weightings versus the Russell 1000 Value Index are as follows: Information Technology 23.5% vs. 11.4% benchmark, Healthcare 8.2% vs. 11.8%, Financials 11.2% vs. 20.9%, Consumer Discretionary 7.3% vs. 7.3%, Communication Services 8.7% vs. 8.3%, Industrials 4.6% vs. 13.7%, Consumer Staples 6.3% vs. 7.7%, Energy 6.1% vs. 6.3%, Utilities 4.4% vs. 4.2%, Materials 2.6% vs. 4.3%, and Real Estate 8.9% vs. 3.9%.
Overall, this portfolio aims to balance growth and stability by combining innovative growth companies with established blue-chip stocks and defensive sectors, making it suitable for investors seeking long-term capital appreciation through prudent diversification across the U.S. economy.
The Smart Core Equity 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®
Note on Earnings and Revenue Results:
Deltas are expressed as approximate percentages or ranges relative to consensus estimates and reflect the manager’s current views, which may change without notice, and should not be relied upon as precise forecasts or indicators of future performance. Earnings results and guidance are based on publicly available company disclosures and are subject to revision. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially.
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.
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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
Definitions:
*“Magnificent Seven”: Apple, Microsoft, Alphabet (Google), Amazon, Meta Platforms, Nvidia, Tesla
Russell 1000 Value Index: Russell 1000 Value Index measures the performance of large U.S. companies from the Russell 1000 universe with lower price-to-book ratios and lower forecasted growth values, serving as a benchmark for large-cap value stocks with traditional sectors like Financials and Health Care. It's a market-cap-weighted index, annually reconstituted, that provides an objective measure of the U.S. large-cap value segment.
Russell 1000 Growth Index: Russell 1000 Growth Index tracks the performance of large-capitalization U.S. stocks exhibiting strong growth characteristics defined by higher price-to-book (P/B) and price-to-earnings (P/E) ratios, and higher forecasted growth, separating them from value stocks within the top 1,000 U.S. companies (the Russell 1000). It serves as a benchmark for the large-cap growth segment, capturing companies expected to grow faster, often reinvesting earnings, and is reconstituted annually.
S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.
S&P 500 Equal Weight Index: is the equity index that includes the same companies as the S&P 500 but assigns equal weight to each constituent rather that weighting by market capitalization.Future Online Events