Day Hagan Smart Core Equity Strategy Update September 2026
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Day Hagan Smart Core Equity Strategy Update September 2026 (pdf)
Summary
The DH Smart Value Portfolio seeks companies that can earn more than their cost of capital, convert those earnings into cash, and trade at prices that leave room for a margin of safety. That combination—economic profitability, balance-sheet strength, durable cash flow, and valuation discipline—is especially useful when markets are rewarding both innovation and financial discipline.
Strategy Update
August was a reminder that a rising market can still contain several different markets. The S&P 500 advanced 2.7% and the Nasdaq Composite gained 4.0%, but leadership rotated sharply beneath the surface. Software rebounded, energy benefited from higher crude prices, and Information Technology joined Energy among the strongest large-cap sectors. Utilities and Industrials lagged. The 10-year Treasury finished near 4.75%, roughly where it began, yet rate expectations changed meaningfully after a firmer inflation backdrop and a more hawkish message from the Federal Reserve.
That environment rewarded selectivity. Salesforce advanced sharply after reporting accelerating bookings, expanding margins, and tangible growth from its AI products. Zoom and Gartner showed that slower-growing franchises can still create shareholder value through recurring revenue, high margins, free cash flow, and disciplined repurchases. Novo Nordisk and Realty Income offered different forms of durable demand. Just as important, the strategy exited The Trade Desk after its operating results no longer supported the original risk/reward case.
The representative portfolio currently holds 43 equity positions plus cash and Treasury bills. Information Technology is 27.58%, Financials 15.37%, Health Care 10.05%, and Real Estate 8.60%. Cash and short-term Treasury bills total 13.53%. The ten largest equity holdings account for 30.70% of the portfolio, creating meaningful conviction without allowing one company or one theme to determine the outcome.
The strategy is intentionally different from a conventional value index. Index labels can change as prices and growth forecasts move; in fact, portions of several mega-cap growth companies now appear in the Russell 1000 Value Index. Our definition is more demanding. A low multiple is not enough, and a high-quality business is not enough. We want a sound business, improving or durable economics, and a price that offers a sensible return for the risks accepted.
That approach gives the portfolio three potential sources of return. First, the business can compound through revenue, margins, cash flow, and share repurchases. Second, valuation can normalize when expectations have become too pessimistic. Third, dividends and contractual income can reward patience while the thesis develops. Salesforce, BNY, Merck, Realty Income, and Chevron reach those goals in very different ways. Their common feature is not industry membership; it is the ability to create value from current operations rather than from a distant promise.
The Trade Desk illustrates why valuation must be paired with operating evidence. Second-quarter revenue grew only 3%, adjusted EBITDA fell to $241 million from $271 million, and the next-quarter outlook came in well below expectations. Customer retention remained above 95% and the balance sheet was strong, but the earnings path and competitive picture had changed. The position was sold in full. A cheaper price does not automatically create a better investment when the business evidence is weakening.
The Economy Is Growing, but the Consumer Is Choosing Carefully
The second estimate confirmed that real GDP grew at a 1.5% annual rate in the second quarter, slower than the first quarter. In our view, the headline understated some private-sector strength: consumer spending grew at a 3.4% annual rate, and real final sales to private domestic purchasers advanced 4.2%. Corporate profits also increased. The economy is not stalling, but growth is uneven enough that company-specific demand and execution matter more than a simple cyclical forecast.
The household picture was more cautious. July retail sales fell 0.6% from June, even though they remained 5.0% above a year earlier. Real consumer spending was essentially unchanged in July, while the saving rate held at a lean 3.0%. Services spending continued to rise as goods spending declined. That split supports our preference for recurring enterprise services, payments, health care, and contractual income, while arguing for greater selectivity among discretionary brands.
Inflation improved, but not enough to declare victory. July CPI rose 0.1% for the month and 3.4% over twelve months; core CPI increased 0.2% and 2.5%, respectively. The PCE price index was firmer at 3.7% year over year, with core PCE at 3.3%. At Jackson Hole, Fed Chair Kevin Warsh emphasized that underlying inflation must move clearly and sufficiently toward the 2% objective. Markets heard a central bank willing to keep policy restrictive—and potentially do more—if the data do not cooperate.
The result is a higher hurdle rate for every asset. Long-duration equities must deliver the cash flows embedded in their valuations. REITs must grow rents and funds from operations rather than rely solely on falling yields. Leveraged businesses must absorb higher refinancing costs. The portfolio’s cash and Treasury bills also earn a meaningful return, which raises the standard for new purchases and gives us dry powder when volatility creates better entry points.
Earnings Remain the Market’s Strongest Support
Corporate results remain a powerful support. Late in the second-quarter reporting season, FactSet found that 86% of S&P 500 companies had exceeded earnings estimates and 76% had beaten revenue estimates. Both readings were above their five- and ten-year averages. The forward 12-month P/E ratio was near 19.5 by late August, close to long-term norms but not cheap enough to excuse weak execution. The encouraging part is that forward earnings estimates rose faster than the index price during the quarter.
Portfolio reports reinforced the difference between AI spending and AI economics. Salesforce’s Agentforce and Data 360 annual recurring revenue approached $3.9 billion, while current remaining performance obligations grew 14%. Zoom produced a 40.0% non-GAAP operating margin and $472 million of free cash flow while enterprise revenue accelerated to its fastest growth rate in three years. These companies are increasingly turning AI from a product announcement into contracted revenue, higher usage, or better customer retention.
The same discipline applies outside software. Gartner generated $378 million of quarterly free cash flow and repurchased $547 million of stock, even as top-line growth remained modest. Novo Nordisk increased adjusted sales 7% at constant exchange rates and raised its full-year outlook, though competitive and pipeline risks remain. Realty Income grew AFFO per share 3.8%, invested at a 7.3% initial cash yield, and earned an A credit rating from Fitch. Different businesses; the same emphasis on cash economics and financial flexibility.
Positioning: Four Return Engines, One Valuation Discipline
Information Technology remains the largest allocation at 27.58%. The exposure is concentrated in software, IT services, networking, and workflow platforms rather than a single semiconductor cycle. Salesforce, ServiceNow, Adobe, Zoom, Cognizant, Accenture, Amdocs, Cisco, CDW, Dropbox, Gartner, and Qualcomm give the portfolio several ways to benefit from enterprise modernization. The key tests are bookings, renewal rates, cash conversion, and whether AI investment produces measurable customer value.
Real Estate and Utilities total 12.72%. American Tower, Mid-America Apartment Communities, NNN REIT, Realty Income, VICI Properties, National Fuel Gas, and OGE Energy provide exposure to towers, apartments, contractual rents, natural-gas infrastructure, and regulated investment. These holdings are rate-sensitive, but they are not merely bond substitutes. Rent escalators, occupancy, re-leasing economics, asset recycling, and rate-base growth can create value even if Treasury yields stay higher for longer.
Financials represent 15.37% of the portfolio. The emphasis is not broad loan growth. BNY, JPMorgan, Goldman Sachs, Visa, Berkshire Hathaway, Ares, Blackstone, and KKR span custody, payments, capital markets, insurance, and private assets. Fee revenue and scale can provide multiple earnings levers, while the mix limits dependence on any single part of the credit cycle. We continue to watch underwriting, fundraising, realizations, deposit costs, and credit losses.
Health Care is 10.05%, led by Merck, Bristol Myers Squibb, and Novo Nordisk. Current products generate cash flow; pipelines add optionality. Patent cliffs, trial results, reimbursement, and competition can change value quickly, making position size and valuation critical.
Consumer Discretionary, Consumer Staples, and Communication Services total 15.31%. Amazon, Ulta, lululemon, Constellation Brands, Hershey, Campbell’s, Alphabet, Meta, Netflix, and Omnicom reach consumers through different channels and price points. The opportunity is company-specific: platforms with scale, brands with pricing power, and businesses that can protect margins in a selective spending environment. The risk is equally specific, which is preferable to making one large bet on “the consumer.”
Industrials are absent and Materials account for 2.47% through Owens Corning. Energy is 2.97% through Chevron and Kinder Morgan. This is not a forecast that those sectors cannot perform; it reflects where we currently find the strongest combination of economic profitability, balance-sheet quality, cash flow, and valuation. The 13.53% liquidity reserve keeps that conclusion revisable. It can fund purchases when better evidence and better prices arrive.
What We Are Watching
Inflation after the oil shock. Headline CPI improved in July, but PCE inflation and crude prices kept the Fed’s job unfinished. Persistent energy and service inflation would raise discount rates and pressure consumer purchasing power.
The cost of capital. With the 10-year Treasury near 4.75%, companies must earn their valuation. We are watching refinancing needs, free-cash-flow yields, and whether investment returns exceed a higher hurdle rate.
Software’s proof points. August restored confidence in several enterprise platforms. September brings Adobe’s report and another test of bookings, AI monetization, margins, and customer retention.
The consumer split. Services remain firmer than goods, while retail sales and real spending softened. Traffic, units, promotions, inventory, and brand strength will matter more than a single aggregate spending number.
August Portfolio Review — Evidence Behind the Holdings
Five current holdings reported meaningful operating results during August, and one former holding was sold after its report. The summaries below focus on recurring economics, capital allocation, and the next proof point—not merely whether quarterly earnings exceeded consensus. Holdings are subject to change without notice.
Enterprise Software and Research
| Company / report date | Quarter in numbers | Why it matters to the holding |
|---|---|---|
| Salesforce (CRM) — Aug. 26 | Revenue $11.3B, +11%; cRPO $33.5B, +14%; non-GAAP margin 34.1%; free cash flow $1.1B, +81%. | Agentforce and Data 360 ARR approached $3.9B, up more than 210%. Accelerating obligations, higher margins, and cash generation show AI becoming a paid extension of an embedded customer platform. |
| Zoom (ZM) — Aug. 25 | Revenue $1.28B, +4.9%; Enterprise revenue +7.8%; non-GAAP margin 40.0%; free cash flow $472M. | Enterprise growth was the fastest in three years, large customers increased 8.2%, and the company retained $7.2B in cash and marketable securities. The next step is converting AI product adoption into sustained net expansion. |
| Gartner (IT) — Aug. 4 | Revenue $1.7B; adjusted EBITDA $466M, +6.4%; free cash flow $378M; repurchases $547M. | Subscription-like Insights revenue and high cash conversion support the thesis, while modest contract-value growth remains the key watch item. Management raised adjusted EPS and free-cash-flow guidance. |
Health Care and Real Assets
| Company / report date | Quarter in numbers | Why it matters to the holding |
|---|---|---|
| Novo Nordisk (NVO) — Aug. 4 | Adjusted sales DKK 78.5B, +7% at CER; adjusted operating profit DKK 33.4B, +11% at CER. | GLP-1 volume growth supported a better outlook, but pill adoption, pricing competition, and pipeline execution remain important. Strong current economics must continue to offset a more competitive future. |
| Realty Income (O) — Aug. 5 | AFFO/share $1.09, +3.8%; $2.6B invested at 7.3% initial cash yield; rent recapture 102.7%. | The company raised AFFO guidance and received an A rating from Fitch. Investment spreads, access to capital, and contractual rent—not simply lower interest rates—drive the compounding case. |
Sell Discipline and Portfolio Optionality
| Decision / date | Evidence | Portfolio implication |
|---|---|---|
| Sold The Trade Desk (TTD) — Aug. 13 | Q2 revenue +3%; adjusted EBITDA $241M versus $271M; Q3 outlook below expectations. | The original earnings path weakened and competitive uncertainty increased. The position was exited rather than defended solely because the share price had fallen. |
Current Portfolio Architecture
| Portfolio sleeve | Allocation | Role in the strategy |
|---|---|---|
| Profitable technology and fee businesses | 48.13% | Technology, communications, and financial franchises with recurring revenue, scale, and multiple paths to cash-flow growth. |
| Durable demand and income | 28.23% | Health care, staples, utilities, and real estate designed to diversify economic sensitivities and provide contractual or recurring cash flow. |
| Selective cyclicality | 10.11% | Consumer discretionary, energy, and materials positions where company-specific economics are more attractive than broad sector exposure. |
| Liquidity and optionality | 13.53% | Cash and short-term Treasury bills that provide income, stability, and capital for future opportunities. |
| Source note: Market data from S&P Dow Jones Indices and YCharts. Economic data from the Bureau of Economic Analysis, Bureau of Labor Statistics, U.S. Census Bureau, Institute for Supply Management, and Federal Reserve. Earnings data from FactSet and company investor-relations materials. Figures are rounded. | ||
Closing View
August rewarded growth, but it did not reward growth at any price. Software rebounded because several companies produced evidence of bookings, margins, cash flow, and real AI adoption. Energy benefited from higher crude prices. Long-term yields stayed elevated, forcing investors to distinguish businesses that can finance their own growth from those that depend on cheap capital or endlessly rising expectations.
That is the environment the Smart Value discipline is built for. The portfolio is neither a broad “cheap stock” basket nor a disguised momentum index. It combines profitable technology, fee-based financials, health-care innovation, contractual real-estate income, selective consumer franchises, and a 13.53% liquidity reserve. We will not predict every rotation. We will keep demanding that price, cash flow, balance-sheet strength, and business progress support one another—and we will act when they no longer do.
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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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.