Day Hagan Smart Core Equity Strategy Update July 2026
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Summary
The Day Hagan 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
Equities finished the month with a strong final session, helped by a rebound in AI-related shares, semiconductor leadership, and continued confidence in corporate earnings. Even so, the S&P 500 still posted its first monthly decline after two strong months, while the Dow reached another record high and small caps continued to show improving breadth.
The key message was rotation, not retreat. Investors continued to favor companies tied to AI infrastructure, chips, data centers, and earnings visibility, but valuation concerns weighed on parts of software and higher-multiple growth.
Fixed income was less friendly. Treasury yields moved higher late in the month as stronger labor data and sticky inflation kept the Fed cautious. Bond investors were forced to balance solid economic momentum against the risk that rate cuts may take longer to arrive.
The portfolio remains focused on companies we believe combine attractive valuation, quality balance sheets, meaningful cash generation, and improving long-term business value. That discipline is especially important today because the market has continued to reward a fairly narrow group of growth companies tied to artificial intelligence, semiconductors, cloud infrastructure, and data-center spending. Last month’s update framed the portfolio around economic profitability, quality, cash generation, and valuation discipline, which remains the core of the process today.
June was another reminder that the market is not simply trading on one story. AI remains the dominant investment theme, but the broader backdrop is changing. Inflation has reaccelerated, the Federal Reserve has become less willing to promise future easing, energy prices have complicated the outlook, and corporate earnings expectations have moved higher. In our view, that combination makes selectivity more valuable. When earnings expectations rise and valuations are no longer cheap, the price paid for future growth matters more, not less.
FactSet’s June 26 Earnings Insight showed that S&P 500 earnings expectations improved during the quarter. Estimated second-quarter earnings growth rose to 23.1% from 18.8% at the start of the quarter, while estimated revenue growth rose to 12.3% from 9.5%. That is a constructive backdrop for equities, but it also raises the bar. Strong markets can absorb good news. Expensive markets need that good news to continue.
This is where we believe a quality value discipline can become more relevant. Value does not require a collapse in growth stocks to work. It often works when earnings growth broadens, when investors begin to ask harder questions about valuation, when interest rates remain higher than expected, or when companies with durable cash flows begin to be rewarded for consistency. Last month, we noted that leadership often rotates when expectations become extended, rate assumptions change, or investors refocus on valuation and risk.
The portfolio continues to hold a balanced mix of quality technology, financials, health care, communication services, real estate, utilities, consumer holdings, and short-term Treasury exposure. We still own select software and technology companies where the market appears to be discounting slower growth or AI disruption, including Adobe, Salesforce, Accenture, Gartner, ServiceNow, Cisco, CDW, Dropbox, and Cognizant. These are not simply “growth at any price” holdings. In several cases, they are larger, more profitable, and more cash-generative businesses trading at prices or valuations that look more reasonable than they did in prior cycles.
We also made several portfolio changes. We increased short-term Treasury bill exposure through BIL, which continues to provide defensive income, liquidity, and flexibility. We added initial, albeit smaller, positions in Ares, Blackstone, and KKR, increasing exposure to alternative asset managers with global platforms, fee-related earnings power, and long-term participation in the growth of private markets. We exited Comcast and Vail Resorts, and trimmed Qualcomm. These moves were designed to improve the portfolio’s balance, reduce areas with less favorable risk-reward profiles, and add to businesses we believe can compound value over a full cycle.
The increased allocation to alternative asset managers is particularly interesting in the current environment. Higher rates, tighter lending standards, and continued demand for private capital have created a larger opportunity set for firms with advantages in scale, relationships, and capital formation. Ares, Blackstone, and KKR provide exposure to private credit, infrastructure, real estate, secondaries, insurance-related capital, and long-duration fee streams. We view these as financially oriented businesses with growth characteristics, but also with valuation support that can become more important if investors rotate away from the most crowded parts of the market.
Here is additional context on our recent portfolio adjustments, drawn from the Trade Notification sent on May 30th:
We added exposure to the companies helping reshape global capital markets. Ares Management, Blackstone, and KKR provide access to the long-term growth of private markets, including private credit, infrastructure, real estate, secondaries, and private equity.
Private markets continue to move into the mainstream. Institutional and individual investors are increasingly looking beyond traditional stock and bond portfolios, creating a larger opportunity set for scaled alternative asset managers.
These businesses have multiple potential revenue streams. Fundraising, fee-earning assets under management, evergreen products, wealth-channel growth, performance fees, and capital markets activity all provide potential earnings drivers.
Each new holding brings something different. Blackstone adds scale across real estate, private credit, infrastructure, and private equity. KKR adds broad private-markets exposure, with strength in infrastructure, insurance, and asset-based finance. Ares adds targeted exposure to private credit, one of the fastest-growing areas of alternative investing.
We funded these additions by moving away from lower-conviction opportunities. Vail Resorts remains a quality franchise, but slower visitation trends, consumer spending pressures, weather sensitivity, and limited near-term catalysts have made the risk-reward profile less compelling.
We also exited Comcast after a strategic shift changed the investment profile. The restructuring announcement (separating into NBCUniversal, Sky, and Comcast) may ultimately create value, but it introduced execution uncertainty and a new framework that no longer fit our current conviction level.
Qualcomm remains a long-term holding, but we trimmed the position after strength. The company still has attractive exposure to mobile, connectivity, edge computing, automotive, AI-enabled devices, and industrial markets, but the position size now better reflects the current risk-reward balance.
Overall, the trades were about upgrading the opportunity set. We reduced exposure where catalysts appeared less favorable and added to businesses that we believe are tied to durable secular trends, expanding private-market demand, and long-term fee-based earnings growth.
The macro environment remains mixed but supportive enough for earnings growth. Manufacturing expanded in June, albeit at a slower pace, as the ISM Manufacturing PMI eased to 53.3 from 54.0. New orders remained in expansion, while price pressures cooled from very elevated levels. That combination suggests the economy still has momentum, but costs and policy uncertainty remain important issues for companies.
The labor market has also held together. The unemployment rate remained at 4.3% in May, matching expectations, while nonfarm payrolls continued to show job creation. At the same time, participation has remained low and wage growth has moderated, suggesting the economy is not overheating uniformly.
Inflation is the bigger complication. Recent releases show that U.S. headline CPI rose to 4.2% in May from 3.8% in April, largely due to higher energy costs tied to the conflict in Iran. Core CPI rose to 2.9%, although the monthly core reading was more contained. This matters because sticky inflation makes the Fed less likely to deliver the kind of easy-money backdrop that often supports the most expensive, longest-duration growth stocks.
The Federal Reserve kept rates unchanged in June at 3.50% to 3.75%, and the policy tone has become more data-dependent. That does not mean value automatically outperforms, but it does make the case for owning companies with current earnings, current cash flow, and reasonable valuations more compelling.
Consumer sentiment improved in June from May’s record low, helped in part by some relief in gasoline prices, but it remained depressed. That is an important distinction. The consumer is not broken, but confidence remains fragile. In that environment, we believe the portfolio’s mix of defensive holdings, dividend-oriented companies, REITs, utilities, health care, and cash-like Treasury bill exposure provides ballast, while software, financials, communication services, and select consumer holdings provide participation if markets continue to broaden.
FactSet also reported that the S&P 500 forward 12-month P/E ratio was 20.1, above both its 5-year and 10-year averages. Meanwhile, Energy and Financials carried the lowest forward P/E ratios among sectors, while Industrials and Consumer Discretionary were the highest. This type of valuation spread is one reason we think value deserves renewed attention.
The key point is that value does not need perfection. It needs a wider market. A broadening of earnings strength beyond a small group of AI winners, greater investor sensitivity to valuation, a higher-for-longer rate backdrop, and renewed interest in companies with real cash flow could all support a more constructive environment for value-oriented portfolios.
Overall, we are positive on the portfolio’s positioning. We believe it is built for a market that may be entering a more selective phase. The objective is not to avoid innovation or ignore AI. The objective is to own businesses in which the relationship among price, earnings power, cash flow, and balance-sheet quality appears favorable. In a market with elevated expectations, that discipline may become increasingly important.
The portfolio sector allocations versus the Russell 1000 Value Index are as follows: Information Technology 27.7% vs. 16.2% benchmark, Healthcare 9.4% vs. 10.7%, Financials 14.2% vs. 19.1%, Consumer Discretionary 4.7% vs. 6.8%, Communication Services 6.5% vs. 8.3%, Industrials 2.0% vs. 12.7%, Consumer Staples 5.7% vs. 7.1%, Energy 3.0% vs. 6.8%, Utilities 4.2% vs. 4.1%, Materials 0.0% vs. 4.0%, Real Estate 9.2% vs. 3.9%, and cash levels approximating 13.3%.
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. All investments involve risk, including the possible risk of loss.
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
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Definitions:
Adjusted EPS / EPS without NRI — Earnings per share excluding non-recurring items. This metric is often used to evaluate a company’s underlying profitability by removing unusual gains, losses, or one-time expenses.
AI Infrastructure — The technology hardware, software, networking, data-center capacity, cloud resources, and power systems needed to support artificial intelligence workloads.
Balance-Sheet Quality — A measure of a company’s financial strength, including cash levels, debt burden, liquidity, and ability to fund operations through different market environments.
Cash Flow Generation — A company’s ability to produce cash from its business operations after funding expenses and investment needs.
Cash / T-Bills — Portfolio holdings in cash or short-term U.S. Treasury bills. These positions typically provide liquidity, lower volatility, and income tied to short-term interest rates.
Cloud Infrastructure — The servers, data centers, networking equipment, and software platforms that allow companies to store, process, and access data and applications remotely.
Commodity Sensitivity — The degree to which a company’s earnings, cash flow, or stock price is affected by changes in commodity prices, such as oil or natural gas.
Defensive Ballast — Portfolio holdings that may help reduce volatility or provide stability during weaker equity markets, often including cash, utilities, consumer staples, health care, or high-quality dividend-paying companies.
Digital Workflow Solutions — Software platforms that automate, organize, and improve business processes across departments such as IT, security, operations, finance, and human resources.
Earnings Surprise — The difference between reported earnings and analysts’ expectations. A positive earnings surprise occurs when reported earnings exceed consensus estimates.
Enterprise IT Modernization — The process by which companies upgrade technology systems, including software, cloud platforms, cybersecurity, networks, data centers, and computing infrastructure.
EVA / Economic Value Added — A measure of whether a company is generating returns above its cost of capital. Positive EVA suggests the company is creating economic value for shareholders.
Factor Sensitivity — A portfolio’s exposure to common investment characteristics, such as growth, value, quality, momentum, size, dividend yield, or interest-rate sensitivity.
Free Cash Flow Per Share — Free cash flow divided by shares outstanding. It shows how much cash a company generates for each share after capital spending.
Growth-Oriented Companies — Companies expected to grow revenue, earnings, or cash flow faster than the broader market. These businesses often trade at higher valuation multiples.
Large-Cap Stability — Exposure to larger, more established companies that may have stronger balance sheets, broader revenue sources, and greater access to capital.
Operating Leverage — The ability of a company to grow earnings faster than revenue as fixed costs are spread across a larger revenue base.
Per-Share Fundamentals — Financial metrics expressed on a per-share basis, such as revenue per share, earnings per share, free cash flow per share, or book value per share. These measures help evaluate whether shareholder economics have improved over time.
Price-to-Cash-Flow — A valuation ratio comparing a company’s stock price to its cash flow per share. Lower ratios may suggest a more attractive valuation, depending on business quality and growth prospects.
Quality / Value Discipline — An investment approach that emphasizes financially sound companies trading at reasonable valuations, with attention to earnings durability, cash flow, balance-sheet strength, and risk.
Rate Sensitivity — The degree to which a stock, sector, or portfolio may be affected by changes in interest rates. REITs, utilities, and dividend-oriented stocks often have meaningful rate sensitivity.
Revenue Per Share — Total company revenue divided by shares outstanding. It helps measure how much revenue is generated for each share owned.
Risk/Reward Profile — The balance between potential return and potential downside risk. A more attractive risk/reward profile suggests that expected upside appears favorable relative to possible losses.
Run-Rate Operational Improvements — Estimated recurring cost savings or efficiency gains expected to continue over time once fully implemented.
Sector Allocation — The percentage of a portfolio invested in each economic sector, such as Information Technology, Financials, Health Care, Energy, Real Estate, or Consumer Staples.
Share Repurchases / Buybacks — When a company buys back its own shares, which can reduce shares outstanding and improve per-share metrics over time.
TTM / Trailing Twelve Months — Financial results from the most recent 12-month period. TTM data is often used to compare current fundamentals with prior fiscal-year results.
Valuation Multiple — A ratio used to compare a company’s market value with financial metrics such as earnings, cash flow, revenue, or EBITDA.
Value-Oriented Managers — Investment managers who focus on companies trading at prices they believe are reasonable or discounted relative to fundamentals such as earnings, cash flow, assets, or long-term value.
Year-over-Year Earnings Growth — The percentage change in earnings compared with the same period one year earlier.