Day Hagan Smart Sector® International Strategy Update August 2026
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Day Hagan Smart Sector® International Strategy Update August 2026 (pdf)
Executive Summary
July reduced the international equity debate to two powerful forces. The first was the technology investment boom, which continued to lift semiconductor equipment, foundries, memory, data-center infrastructure, and advanced manufacturing. The second was the renewed energy shock from the Iran war. Brent crude ended the month near $90 per barrel after rising roughly 26% in July, putting transportation costs, inflation expectations, bond yields, and central-bank policy back at the center of the market.
Those forces did not affect every country equally. Energy exporters, resource producers, refiners, and markets tied to the AI supply chain gained new earnings support. Oil importers, rate-sensitive consumers, and countries with weaker currencies faced a more difficult combination. The IMF’s July update projected global growth of 3.0% in 2026 and 3.4% in 2027—continued expansion, but below the 3.5% average of 2024–2025. The broad global economy is still moving forward; the more useful question is where nominal growth is reaching corporate income statements rather than being absorbed by higher input costs.
The portfolio is positioned around that distinction. Australia, China, Japan, and South Korea are overweight. Switzerland is neutral. Canada, France, Germany, India, the Netherlands, Taiwan, and the United Kingdom are underweight. This is not a blanket preference for one continent. It is a preference for markets where earnings composition, valuation, policy, currency behavior, and market confirmation line up more favorably.
Asia remains the main source of differentiated opportunity. South Korea combines extraordinary memory-chip demand with a 6.4-times forward earnings multiple, strong exports, and a firmer won. Japan adds automation, financial reform, exporters, and corporate-governance improvement at 17.1 times forward earnings. China offers advanced manufacturing, batteries, internet platforms, and policy optionality at 11.1 times forward earnings. By contrast, Taiwan and India are underweight despite excellent businesses and strong structural stories. Taiwan’s 21.0-times forward P/E and 5.8-times book multiple leave little room for an ordinary semiconductor cycle, while India’s 20.3-times multiple, weaker rupee, and exposure to higher imported oil raise the hurdle for new capital.
Europe produced better economic data in July, but the portfolio is not chasing the first improvement in a long-soft cycle. The euro-area composite PMI rose above 50, Germany returned to modest expansion, and company reports from ASML, Deutsche Bank, LVMH, BNP Paribas, Barclays, Shell, and UBS showed that Europe still owns many globally important businesses. The ECB’s June rate increase to a 2.25% deposit rate, however, marked a major change in the policy backdrop. Higher energy costs and a firmer euro may help some financials and U.S.-dollar returns, but they also tighten conditions for households and domestic companies. France, Germany, the Netherlands, and the U.K. therefore remain underweight, while Switzerland stays neutral.
Valuation still argues for looking beyond the United States, but not for buying every inexpensive market. The World ex U.S. equities trade at 15.9 times forward earnings, versus 19.3 times for the World index and 21.0 times for the U.S. Emerging markets trade at 11.3 times. The dispersion within those groups is more useful than the averages: South Korea is at 6.4 times, China at 11.1, the U.K. at 12.9, France at 14.9, and Germany at 14.8, while the Netherlands and Taiwan both exceed 21 times. Cheapness is an advantage only when earnings, policy, currency, or price behavior gives investors a reason to close the discount.
Currency is also doing more work in portfolio results. The euro and won strengthened in July, adding support for dollar-based investors in Europe and South Korea. The yuan also firmed, an encouraging change for the China overweight. The rupee and Taiwan dollar weakened, reinforcing the underweights in India and Taiwan. In the Explore sleeve, the Mexican peso and Peruvian sol were helpful, while the Israeli shekel gave back some ground during the month after a strong prior-year move. Currency is not a side issue in this strategy; it can either validate the equity thesis or quietly erase local-market gains.
The portfolio’s main attributes are deliberate. It owns the AI supply chain, but emphasizes lower-valued Korean memory and Japanese industrial technology rather than paying the full premium in Taiwan and the Netherlands. It owns commodity sensitivity through Australia, Chile, and Peru, while retaining exposure to banks, infrastructure, defense, healthcare, and domestic consumption. It also avoids turning a strong company report into a broad country call. July offered several reminders that a world-class franchise can beat expectations even when its home market remains an underweight.
Holdings
Core: Developed Market Positions (approximately 85% of equity holdings)
Country
Australia
Canada
China
France
Germany
India
Japan
Netherlands
South Korea
Switzerland
Taiwan
United Kingdom
Outlook
Overweight
Underweight
Overweight
Underweight
Underweight
Underweight
Overweight
Underweight
Overweight
Neutral
Underweight
Underweight
Explore: Emerging Market Positions (approximately 15% of equity holdings)
Malaysia
Chile
Peru
Israel
Mexico
Position Details
Core: Developed Market Commentary
Approximately 85% of the strategy is allocated across 12 large, liquid non-U.S. equity markets. The fund overweights and underweights these markets based on macro, fundamental, behavioral, currency, and technical indicators.
AUSTRALIA - MODEST OVERWEIGHT
Australia moves to overweight because July improved the connection between the country’s market structure and the global macro backdrop. Brent’s sharp advance raised the value of energy security, while copper, gold, iron ore, LNG, and high-quality resource assets remained central to global infrastructure and electrification spending. The market also offers profitable banks and dividend-paying companies, giving the portfolio a combination of inflation sensitivity and income that is scarce elsewhere.
The macro picture requires care. The RBA’s cash rate remains 4.35%, June inflation eased to 3.8%, and trimmed-mean inflation was 3.6%. The softer headline is welcome, but underlying inflation is still above the 2%-3% target. Australia’s 10-year government yield ended July near 4.97%, 18 basis points higher over the month. That is a demanding rate backdrop for housing, leveraged consumers, and domestic discretionary companies, but it is less threatening to globally priced miners and energy producers.
Rio Tinto’s first-half report captured the opportunity. Underlying earnings rose 43% to $6.85 billion, copper EBITDA increased 84% to $5.7 billion, and copper and aluminum together generated roughly 56% of profit. The company also declared its highest interim dividend in four years. Those figures illustrate why the overweight is aimed at cash-generative resources, metals needed for electrification, energy infrastructure, and strong bank balance sheets, not a broad bet on Australian household spending.
The indicator mix supports that tilt. Relative trend, gold sensitivity, beta, and earnings yield are constructive, while the Australia-U.S. interest-rate differential and the broader ACWI scorecard remain caution flags. In portfolio terms, the commodity and earnings signals earn the overweight; the rate signals determine where not to take risk.
Figure 1: Australia’s resource and earnings signals outweigh a difficult interest-rate backdrop.
CANADA - UNDERWEIGHT
Canada remains underweight because the market has useful assets but an unhelpful combination of currency, leading indicators, and relative yield. MSCI Canada trades at 16.2 times forward earnings, 2.9 times book value, and 12.7 times cash flow. That is not excessive, but it is also not a large discount for a market heavily dependent on banks, energy, materials, and the domestic credit cycle.
The Bank of Canada held its overnight rate at 2.25% for a sixth consecutive meeting in July. June inflation eased to 2.8%, giving policymakers room to wait, but the Canadian dollar remained soft, and the rate gap with the United States stayed wide. Canada’s 10-year yield was about 3.67% late in July, roughly one percentage point below the U.S. 10-year. That gap is a persistent headwind for the currency and therefore for U.S.-dollar returns.
There are investable pockets. Higher oil prices improve upstream cash flow and support pipelines, while gold and infrastructure spending can help materials and engineering companies. Shopify’s most recent report showed 34% revenue growth and guidance for growth in the high-20% range, evidence that Canada also has genuine growth franchises. The major banks had not yet reported their July-quarter results by month-end, leaving credit quality and net-interest income as important August tests.
Price trend and the ACWI technical scorecard have improved, but the OECD leading indicator, Canadian dollar, mean-reversion signal, and relative earnings yield remain unfavorable. The underweight says the market’s best businesses should be owned selectively; it does not say that oil, pipelines, gold, or digital commerce lack opportunity.
Figure 2: Improving price behavior has not yet overcome Canada's currency and leading-indicator drag.
CHINA — OVERWEIGHT
China moves to overweight because valuation, improving currency behavior, policy capacity, and a broad set of market signals now outweigh the still-uneven domestic economy. MSCI China trades at 11.1 times forward earnings and 1.5 times book value, a substantial discount to world equities. The low multiple reflects real problems in property, household confidence, and private-sector demand, but it also means the market does not require a return to the old credit-led growth model to work.
July’s official manufacturing PMI slipped to 49.2, and the non-manufacturing gauge fell below 50. Second-quarter GDP still grew 4.3% from a year earlier, but the data confirm that exports and advanced manufacturing are doing more work than housing or consumption. The PBOC kept the one-year and five-year loan prime rates at 3.0% and 3.5%, respectively. The policy stance is measured rather than dramatic, yet it leaves room for targeted support if weak demand begins to threaten employment.
Corporate results show where the economy is producing growth. CATL’s second-quarter net profit rose 36.5% and revenue increased 56.9%, with energy storage offsetting softer electric-vehicle demand. That is a useful template for the overweight: batteries, grid storage, automation, industrial software, internet platforms with better capital discipline, and companies tied to technology self-sufficiency. Property developers and businesses dependent on a rapid household-spending rebound remain a different proposition.
The yuan strengthened during July, while relative momentum, mean reversion, PMI sensitivity, and the emerging-market currency basket are supportive. The absolute moving-average signal and high-yield credit-spread relationship remain bearish, a reminder that financial stress has not disappeared. The overweight is a valuation-and-earnings-recovery position, not a declaration that every part of China has turned.
Figure 3: China’s low valuation and improving market confirmation support a selective overweight.
FRANCE — UNDERWEIGHT
France remains underweight even though July offered better company news and a less-bad economic reading. The composite PMI rose to 49.6, close to stabilization but still below the expansion line. Domestic demand remains soft, political and fiscal questions continue to affect confidence, and the ECB’s return to higher rates adds pressure to borrowers. A stronger euro helps dollar-based investors, but it can also reduce the translated earnings of exporters.
MSCI France trades at 14.9 times forward earnings, 2.1 times book value, and 11.2 times cash flow. That is reasonable, and July’s earnings reports showed why France should not be ignored. LVMH returned to 3% organic sales growth in the second quarter; fashion and leather goods grew 1% after seven quarters of declines, while watches and jewelry rose 11%. BNP Paribas reported second-quarter revenue of 14.1 billion euros, up 12%, with another strong contribution from corporate and institutional banking.
The distinction is between globally competitive franchises and the country index. Luxury, aerospace, defense, healthcare, payments, and select financials can grow without a strong French household cycle. The market indicators, however, still show weak trend, price momentum, the ACWI technical scorecard, and OECD leading data. Breadth, dividend yield, and valuation offer support, but not enough to justify a broad overweight.
Figure 4: France’s global champions are stronger than its domestic growth signals.
INDIA — UNDERWEIGHT
GERMANY — UNDERWEIGHT
Germany remains underweight, but July made the debate more interesting. The composite PMI rose to 51.2 and manufacturing output improved to 52.2, indicating that the industrial downturn may be losing force. The euro was firmer, infrastructure and defense spending are becoming more visible, and banks are benefiting from a less forgiving rate environment. These are genuine improvements, not merely statistical noise.
Company results were split along the same lines as the economy. Deutsche Bank reported second-quarter profit after tax of 1.9 billion euros, up 10%, while investment-bank revenue rose 19%. Mercedes-Benz produced 2.5 billion euros of first-half net profit, modestly below the prior year, as weakness and investment costs in China weighed on results. Finance, defense, power equipment, and automation are finding demand; autos tied to China and price-sensitive consumers face a harder road.
At 14.8 times forward earnings and 8.5 times cash flow, Germany is not expensive. The indicator framework also shows better breadth, relative trend, and euro support. Manufacturing confidence, fund flows, relative dividend yield, and the broader technical scorecard remain negative, however. The underweight can be lifted when better factory output becomes better orders, margins, and export earnings. Until then, the portfolio favors banks, defense, electrification, grid equipment, and automation over a full country allocation.
Figure 5: Germany’s factory data are improving, but orders and earnings breadth still need to follow.
INDIA — UNDERWEIGHT
India remains one of the world’s best long-duration growth stories and one of the portfolio’s clearest examples of price discipline. Real GDP grew 7.8% from a year earlier in the latest quarter, digital payments and formalization continue to broaden the profit pool, and infrastructure investment supports lenders, construction, logistics, and capital goods. None of that automatically makes the market attractive at any price.
MSCI India trades at 20.3 times forward earnings, 3.3 times book value, and 18.0 times cash flow. July’s manufacturing PMI eased to 53.9 and services to 53.1—still expanding, but slower. The RBI kept the repo rate at 5.25% heading into its early-August meeting, while inflation was 4.38%. More important for the portfolio, the rupee weakened by more than 2% during July and Brent ended near $90. As a large oil importer, India feels higher crude through the trade balance, inflation, corporate margins, and household purchasing power.
HDFC Bank’s June-quarter profit rose 5% to roughly ₹191 billion, but weaker-than-expected net-interest margins sent the shares lower. Axis Bank faced a similar margin concern. The reports did not undermine the long-run banking opportunity; they showed that strong credit growth can coexist with pressure on spreads and valuations.
Forward earnings growth and leading indicators remain favorable, and the crude-oil signal has historically been useful. The rupee-gold relationship and ACWI technical scorecard are less supportive. The underweight is therefore tactical: the portfolio wants India’s financials, industrials, consumer platforms, infrastructure, and technology services at a better combination of price, currency, and oil conditions.
Figure 6: India’s structural growth remains strong, but valuation, currency, and oil raise the entry hurdle.
NETHERLANDS — UNDERWEIGHT
The Netherlands is underweight because a world-class corporate roster is already reflected in a premium price. MSCI Netherlands trades at 21.2 times forward earnings, 4.4 times book value, and 24.0 times cash flow. The market offers semiconductor equipment, payments, consumer brands, logistics, and global financials, but concentration means that one capital-spending cycle can dominate country returns.
ASML delivered the month’s clearest argument for owning the best Dutch businesses. Second-quarter sales were €9.3 billion, net income was €2.9 billion, and management increased its 2026 revenue outlook to €43–€45 billion. It also plans to expand capacity by roughly 30% in 2027 and 2028 as AI demand increases the need for leading-edge lithography. That is exceptional industrial execution.
It is also why expectations matter. The absolute trend, mean-reversion signal, and semiconductor relationship are bearish, while the ACWI scorecard, euro, forward earnings, and leading indicators are favorable. The euro’s July gain can add to dollar returns, but the ECB’s 2.25% deposit rate and higher energy costs leave the domestic economy less compelling than ASML’s order book. The underweight preserves selective exposure to lithography, payments, and high-return global businesses without paying the country-level premium.
Figure 7: Dutch earnings quality is high, but valuation and semiconductor concentration limit the position.
SOUTH KOREA — OVERWEIGHT
South Korea remains overweight and is the portfolio’s most direct expression of the memory-chip cycle. July exports rose 62.8% from a year earlier to $98.9 billion. Semiconductor exports increased nearly 179% to $41.0 billion, while computer shipments rose more than 400% as AI infrastructure spending absorbed high-bandwidth memory and servers. The trade data are extraordinary, but they are also visible in corporate expectations, so stock selection still matters.
Samsung Electronics reported a dramatic increase in semiconductor profit and secured multi-year supply agreements with major data-center customers. SK Hynix also posted record quarterly profit, yet the result fell short of aggressive forecasts and the shares dropped sharply immediately after the report. That reaction is instructive: the industry’s earnings are excellent, but the market will punish even a small gap between reality and enthusiasm.
The Bank of Korea raised its policy rate by 25 basis points to 2.75% in July as higher oil and currency pressure lifted inflation risk. The won nevertheless strengthened almost 7% during the month, a meaningful tailwind for dollar-based investors. MSCI South Korea trades at only 6.4 times forward earnings and 11.6 times cash flow, though its 120-times price-to-dividend ratio suggests this is not an income market.
The absolute trend and mean-reversion indicators remain cautionary, but the ACWI scorecard, won, crude relationship, forward earnings, and OECD leading indicators support the overweight. Memory, AI infrastructure, autos, defense, shipbuilding, and shareholder-return reform provide several ways to win. The principal risks are semiconductor concentration, high expectations, and a rate hike that weighs on domestic demand.
Figure 8: Korea combines exceptional export earnings, a firmer won, and a low forward multiple. Technicals indicate oversold conditions in place.
TAIWAN — UNDERWEIGHT
Taiwan remains underweight for a reason that has nothing to do with the quality of its semiconductor industry. TSMC reported record second-quarter revenue of NT$1.27 trillion, up 36% from a year earlier, and net profit rose 77% to approximately NT$707 billion. Management raised capital-spending plans as leading-edge AI processors continued to fill capacity. Few companies anywhere have comparable demand visibility or strategic importance.
The country index, however, trades at 21.0 times forward earnings, 5.8 times book value, and 23.1 times cash flow. TSMC’s market value and the index’s semiconductor concentration mean that investors are making several bets at once: that AI spending remains high, margins stay near exceptional levels, capacity additions do not create a later glut, the Taiwan dollar cooperates, and geopolitical risk does not widen.
Taiwan’s economy grew 12.9% from a year earlier in the second quarter, and June manufacturing PMI was 55.2. Those are strong figures. Yet the Taiwan dollar weakened roughly 1.3% in July, while the absolute trend, semiconductor relationship, and China PMI signal are bearish. Mean reversion, the ACWI scorecard, valuation model, and currency indicator provide offsets, but not enough to earn an overweight at the current price.
The portfolio can still own companies converting AI demand into free cash flow. The underweight simply recognizes that an outstanding business and an attractive country weight are not always the same decision.
Figure 9: Taiwan’s earnings are exceptional; valuation, concentration, and currency keep the country underweight.
JAPAN — OVERWEIGHT
Japan remains overweight because the market offers several independent earnings engines: automation, factory equipment, financials, global exporters, memory, tourism, and corporate-governance reform. MSCI Japan trades at 17.1 times forward earnings and 2.1 times book value—not a deep-value multiple, but a reasonable price for an economy in which management teams are increasingly expected to improve returns on capital, unwind cross-holdings, and return excess cash.
The Bank of Japan held its policy rate at 1.0% in July after raising it in June. National inflation was 1.7% and core inflation 1.6%, below the 2% target but moving higher as energy subsidies faded. The July composite PMI reached 53.1, manufacturing remained strong near 54.7, and a Reuters corporate survey showed manufacturing sentiment at its best level in more than a year. The weak yen still helps overseas earnings translation, but it also increases imported fuel and material costs.
Earnings underline the need to look beyond the index. Toyota’s first-half global output and sales fell for the first time in two years as China weakened, and supplier Denso reported a 21.5% decline in quarterly operating profit as material costs outran the currency benefit. By contrast, memory producer Kioxia reported April–June operating profit of ¥1.27 trillion and projected another very large profit for the following quarter as AI demand tightened chip supply.
Trend, valuation, forward earnings, China PMI sensitivity, and the yen signal all support the overweight; sentiment reversal is the main warning. The portfolio favors banks with improving margins, automation, semiconductor equipment, memory, and companies executing governance reform. Autos with heavy China exposure require more discrimination.
Figure 10: Japan’s earnings opportunity is broadening beyond exporters into banks, automation, and memory.
SWITZERLAND — NEUTRAL
Switzerland remains neutral: a high-quality portfolio with little macro stress, but a valuation that already charges for those attributes. MSCI Switzerland trades at 18.7 times forward earnings, 4.3 times book value, and 15.8 times cash flow. Healthcare, consumer staples, industrial technology, wealth management, and global brands make the market less economically sensitive than most developed peers.
The Swiss National Bank held its policy rate at 0% in June and projects average inflation of only 0.6% in both 2026 and 2027. The 10-year government yield ended July near 0.41%, and the franc strengthened about 0.4% during the month. That mix gives policymakers room to protect price stability and manage excessive currency moves without imposing the financing burden visible in the U.K. or Australia.
UBS reported second-quarter net profit of $2.8 billion, ahead of the roughly $2.4 billion expected by analysts. The result supports the case for wealth management and the earnings potential of the enlarged franchise. Healthcare and staples still need organic growth and margin delivery to justify their premium multiples, especially when investors can earn more income in cheaper markets.
Breadth, shorter-term momentum, the moving-average slope, and relative yields are constructive; the primary trend and dividend-yield signal are not. Neutral is the right balance: maintain quality, currency diversification, healthcare, and wealth-management exposure without treating defense as undervalued growth.
Figure 11: Switzerland offers quality and policy flexibility, but little valuation margin for error.
UNITED KINGDOM — UNDERWEIGHT
The United Kingdom remains underweight despite cheap valuation and a strong set of global businesses. MSCI U.K. trades at 12.9 times forward earnings and 9.8 times cash flow, with meaningful exposure to energy, banks, defense, miners, healthcare, and dividends. July’s composite PMI improved to 52.1, indicating a return to expansion, and the pound strengthened modestly against the dollar.
The policy backdrop is less friendly. The Bank of England held the Bank Rate at 3.75%, but three of nine policymakers voted to raise it to 4% as the Iran war complicated the inflation path. The U.K. 10-year gilt yield ended July near 5.04%, up 27 basis points during the month. That raises the cost of capital for housing, consumers, utilities, and domestic small companies even as June inflation eased to 2.6%.
Corporate results explain both the appeal and the limits of the market. Shell’s adjusted second-quarter earnings more than doubled to $9.84 billion, beating expectations as higher energy prices, refining margins, and market volatility helped trading. Barclays reported first-half profit up 17%, announced a £1 billion buyback, and raised key income targets after strength in markets and investment banking. These are useful exposures in an oil-and-rate shock, but they do not make the domestic economy inexpensive to finance.
Sterling, sentiment, and the credit-spread signal are constructive; trend, price momentum, and the valuation scorecard remain negative. The underweight favors global energy, banks, defense, miners, and pharmaceutical cash flow while limiting exposure to rate-sensitive domestic demand.
Figure 12: Strong global earners cannot fully offset the U.K.’s high financing costs.
Emerging Market Positions
Approximately 15% of the strategy is allocated across five markets from a pool of more than 20 smaller markets. Selection is based on a multifactor technical ranking system that uses trend and mean-reversion indicators. The process seeks to identify oversold opportunities in global equity markets that are likely to mean-revert from lower levels and to exhibit mild pullbacks from long-term uptrends.
Current Holdings
Malaysia
Chile
Israel
Mexico
Peru
Explore Emerging Market Commentary
MALAYSIA
Malaysia remains an Explore holding because it offers a balanced mix rather than dependence on a single heroic forecast. MSCI Malaysia trades at 14.0 times forward earnings, 1.6 times book value, and 10.1 times cash flow. Banks, semiconductor assembly and testing, data-center power demand, utilities, energy, plantations, and domestic consumer companies all contribute to the index.
Bank Negara Malaysia held its policy rate at 2.75% in July, inflation was only 1.9%, and manufacturing PMI moved back above 50 to 50.7 in June. The ringgit was broadly stable during July and remained stronger than a year earlier. That combination gives companies a manageable funding environment while limiting the currency leakage that often undermines emerging-market returns.
Malaysia will not match Korea or Taiwan for cutting-edge chip exposure, but it can benefit from the less glamorous parts of the supply chain: packaging, testing, power, industrial property, and logistics. Banks and utilities add cash flow if technology demand cools. The position is attractive because it does not require oil, China, domestic consumption, and semiconductors all to work at the same time.
CHILE
Chile enters the Explore lineup as a focused call on copper, selected lithium assets, banks, utilities, and a currency that can respond to better commodity demand. MSCI Chile trades at 13.7 times forward earnings, 2.3 times book value, and 7.3 times cash flow. The cash-flow multiple is appealing for a market with direct exposure to the metals required for grids, electric vehicles, data centers, and defense infrastructure.
The Central Bank of Chile held its policy rate at 4.50% in July, while June inflation rose to 4.3% from 3.9%. The peso softened slightly during the month, unemployment remained at 9.4%, and consumer confidence was weak. Those figures argue against treating Chile as a domestic-demand story.
The opportunity is narrower and more tactical. Higher copper volumes, disciplined mine investment, and electrification demand can improve external balances and corporate cash flow. The principal risks are China-linked metals demand, operating disruptions, political changes, inflation, and a currency that can move quickly when copper falls. Chile belongs in the Explore sleeve because the commodity upside is meaningful and the position size can respect the macro limits.
ISRAEL
Israel is the most event-sensitive holding in the Explore sleeve. The Iran war affects its security spending, risk premium, tourism, labor supply, fiscal choices, and currency more directly than any other market in the portfolio. That exposure creates obvious uncertainty, but it also means that even modest progress toward de-escalation can produce a large change in financing conditions and equity multiples.
The Bank of Israel cut its policy rate by 25 basis points to 3.50% in July, its second consecutive reduction and the lowest rate since 2022. June inflation eased to 1.6%, inside the 1%–3% target range. The central bank projects 4.0% growth in 2026 and 5.5% in 2027 as activity recovers from the conflict-related slowdown. The shekel weakened about 2.2% in July, though it remained roughly 10% stronger than a year earlier.
MSCI Israel trades at 13.2 times forward earnings and 2.5 times book value. The opportunity set includes cybersecurity, enterprise software, defense electronics, banks, medical technology, and globally sold digital services. Local consumer and construction exposures require more caution. This is a tactical position built around easing policy, technology exports, and the possibility that the risk premium normalizes—not a forecast that geopolitical danger has disappeared.
MEXICO
Mexico remains in the Explore allocation because the North American supply-chain story is still investable, but it must now be judged alongside slower manufacturing, trade-policy uncertainty, and a high real interest rate. MSCI Mexico trades at 12.6 times forward earnings, 2.4 times book value, and 9.3 times cash flow. Banks, airports, consumer staples, telecom, materials, industrial property, and infrastructure provide several ways to participate.
Banxico held its policy rate at 6.50% after its May reduction, while June inflation eased to 3.37%. The peso strengthened about 1.3% in July and more than 8% from a year earlier, helping dollar-based returns and signaling policy credibility. Mexico also retained favorable access for USMCA-compliant goods, an important advantage as companies redraw supplier networks.
The best opportunities are businesses that earn from cross-border freight, factory investment, airport traffic, digital banking, and branded consumer demand. The main risks are a U.S. slowdown, changes to trade rules, weak industrial production, and a peso reversal. Nearshoring is not a single event; it is a multi-year investment cycle whose winners should show up in land utilization, power demand, freight volumes, loan growth, and free cash flow.
PERU
Peru remains an Explore holding for copper, gold, banks, utilities, and infrastructure rather than for broad consumer momentum. MSCI Peru trades at 14.3 times forward earnings, 3.5 times book value, and 16.3 times cash flow. The valuation is not as low as some Latin American peers, but the market offers a relatively clean way to add metals exposure alongside Chile.
The central bank held its policy rate at 4.25% in July for a tenth consecutive meeting. June inflation rose to 4.0% and core inflation to 4.5%, above the 1%–3% target, although expectations remained closer to target. First-quarter GDP grew 3.5% from a year earlier, and the sol strengthened roughly 0.8% in July and more than 5% over 12 months. That currency behavior improves the quality of local-market returns.
Peru can benefit from higher copper and gold prices, mine expansions, grid investment, and improving credit demand. Political uncertainty, project delays, limited market liquidity, and dependence on China-linked metals demand remain the main constraints. The position complements Chile: Peru adds precious-metals exposure and a firmer currency profile, while both provide leverage to the physical infrastructure behind electrification and AI.
Catastrophic Stop Model
The Catastrophic Stop model combines time-tested, objective indicators designed to identify high-risk periods for the equity market. The model entered August recommending a fully invested equity allocation relative to the benchmark
The weight of the evidence suggests that international equity exposure can remain selective and fully invested at this time. If the model triggers a sell signal below 40% for two consecutive days, indicating more substantial problems, we will raise cash immediately.
Figure 13: The Catastrophic Stop model recommends a fully invested equity position (relative to the benchmark). Because the model uses indices to extend its history, it is considered hypothetical.
This strategy uses measures of price, valuation, economic trends, liquidity, and market sentiment to make objective, rational, and unemotional decisions about how much capital to risk and where to allocate it.
For more information, please contact us at:
Day Hagan Asset Management
1000 S. Tamiami Trl
Sarasota, FL 34236
Toll Free: (800) 594-7930
Office Phone: (941) 330-1702
Website: https://dayhagan.com or https://dhfunds.com
© 2026 Day Hagan Asset Management
This material is for educational purposes only. Further distribution is prohibited without prior permission. Please see the information on Disclosures and Fact Sheets here: https://dhfunds.com/literature. Charts with models and return information use indices for performance testing to extend the model histories, and they should be considered hypothetical. All Rights Reserved. (© Copyright 2026 Day Hagan Asset Management.)
Day Hagan Smart Sector® International ETF
Symbol: SSXU
Strategy Description
The Smart Sector® International strategy combines three quantitative investment strategies: Core International, Explore International, and Catastrophic Stop.
The Process Is Based On The Weight Of The Evidence
Core Allocation
The fund begins by overweighting and underweighting the largest non-U.S. equity markets based on proprietary models.
Each of the models utilizes market-specific, weight-of-the-evidence composites of fundamental, economic, technical, and behavioral indicators to determine each area’s probability of outperforming the ACWI, for example. U.S. Markets are weighted accordingly relative to benchmark weightings.
Explore Allocation
To select smaller markets, the fund uses a multi-factor technical ranking system to choose the top markets. The markets with the highest rankings split the non-core model allocation equally.
When Market Risks Become Extraordinarily High — Reduce Your Portfolio Risk
The model remains fully invested unless the Catastrophic model is triggered, whereupon the equity-invested position may be trimmed by up to 50%.
The Catastrophic Stop model combines time-tested, objective indicators designed to identify periods of high risk for the broad U.S. equity market. The model uses price-based, breadth, deviation from trend, fundamental, economic, interest rate, behavioral, and volatility-based indicator composites.
When Market Risks Return To Normal — Put Your Money Back To Work
When the Catastrophic Stop model moves back to bullish levels, indicating lower risk, the strategy will reverse toward being fully invested.
Disclosures
The data and analysis contained within are provided “as is” and without warranty of any kind, either express or implied. The information is based on data believed to be reliable, but it is not guaranteed. Day Hagan DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OR USE. All performance measures do not reflect tax consequences, execution, commissions, and other trading costs, and as such, investors should consult their tax advisors before making investment decisions, as well as realize that the past performance and results of the model are not a guarantee of future results. The Smart Sector® Strategy is not intended to be the primary basis for investment decisions, and the usage of the model does not address the suitability of any particular investment for any particular investor.
Using any graph, chart, formula, model, or other device to assist in deciding which securities to trade or when to trade them presents many difficulties, and their effectiveness has significant limitations, including that prior patterns may not repeat themselves continuously or on any particular occasion. In addition, market participants using such devices can impact the market in a way that changes the effectiveness of such devices. Day Hagan believes no individual graph, chart, formula, model, or other device should be used as the sole basis for any investment decision and suggests that all market participants consider differing viewpoints and use a weight-of-the-evidence approach that fits their investment needs.
Past performance does not guarantee future results. No current or prospective client should assume future performance of any specific investment or strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. Historical performance results for investment indexes and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. There can be no assurances that a portfolio will match or outperform any particular benchmark. Comparisons to indices are inherently unreliable indicators of future performance. The strategies used to generate the performance vary from those used to generate the returns depicted in the benchmarks. Investors cannot directly invest in an index.
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.
The material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. 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.
This material is for educational purposes only. Further distribution is prohibited without prior permission. Please see the information on Disclosures and Fact Sheets here: https://dhfunds.com/literature. Charts with models and return information use indices for performance testing to extend the model histories, and they should be considered hypothetical. All Rights Reserved. (© Copyright 2026 Day Hagan Asset Management.)
All hypothetical results are presented for illustrative purposes only. Back-testing and other statistical analysis is provided in use simulated analysis and hypothetical circumstances to estimate how it may have performed prior to its actual existence. The results obtained from "back-testing" information should not be considered indicative of the actual results that might be obtained from an investment or participation in a financial instrument or transaction referencing the Index. The Firm provides no assurance or guarantee that the products/securities linked to the strategy will operate or would have operated in the past in a manner consistent with these materials. The hypothetical historical levels have inherent limitations. Alternative simulations, techniques, modeling or assumptions might produce significantly different results and prove to be more appropriate. Actual results will vary, perhaps materially, from the simulated returns presented.
© 2026 Day Hagan Asset Management
Definitions:
S&P/ASX 200 – Designed to measure the performance of the 200 largest index-eligible stocks listed on the Australian Securities Exchange by float-adjusted market capitalization.
PMI — A survey-based economic indicator that measures business activity in sectors such as manufacturing and services; readings above 50 generally indicate expansion, while readings below 50 indicate contraction.
CPI — A measure of inflation that tracks changes in the prices consumers pay for goods and services over time.
Core Inflation — Inflation excluding more volatile items, typically food and energy, used to gauge underlying price trends.
Federal Reserve (Fed) — The central bank of the United States, responsible for monetary policy, interest rates, and financial stability.
ECB — The European Central Bank, responsible for setting monetary policy for countries that use the euro.
Bank of Japan (BoJ) — Japan’s central bank, responsible for monetary policy, interest rates, and financial conditions in Japan.
Bank of Canada (BoC) — Canada’s central bank, responsible for setting policy rates and managing inflation and economic stability.
Bank of England (BoE) — The United Kingdom’s central bank, responsible for monetary policy and financial stability.
SNB — The Swiss National Bank, responsible for monetary policy and maintaining price stability in Switzerland.
PBoC — The People’s Bank of China, which manages monetary policy, liquidity, and key lending benchmarks in China.
S&P 500 — A major U.S. stock market index tracking 500 large publicly traded U.S. companies; widely used as a benchmark for the U.S. equity market.
DJIA — The Dow Jones Industrial Average, a price-weighted stock index of 30 large U.S. companies, often used as a headline indicator of the U.S. stock market.
Nasdaq Composite — A stock market index composed largely of companies listed on the Nasdaq exchange, with especially heavy representation from technology and growth stocks.
STOXX 600 — A broad European stock index that tracks 600 large, mid, and small companies across Europe.
Nikkei 225 — A major Japanese stock market index tracking 225 prominent Japanese companies.
TSX — Canada’s main stock market benchmark, often referring to the S&P/TSX Composite Index.
CAC 40 — France’s main stock market index, tracking 40 major French companies.
DAX — Germany’s main stock market index, tracking major German listed companies.
FTSE 100 — The leading U.K. stock market index, tracking 100 large companies listed in London.
Shanghai Composite — A major Chinese stock index tracking stocks listed on the Shanghai Stock Exchange.
Shenzhen Component — A major Chinese stock index tracking companies listed on the Shenzhen Stock Exchange.
ACWI ex-U.S. Index — The MSCI All Country World Index excluding the United States; a benchmark for developed and emerging equity markets outside the U.S.
10-Year Yield — The interest rate paid on a 10-year government bond; a key benchmark for long-term borrowing costs and valuation.
Bund Yield — The yield on German government bonds, often used as a benchmark for euro-area sovereign debt.
Gilt Yield — The yield on U.K. government bonds, commonly called gilts.
OAT Yield — The yield on French government bonds.
Policy Rate — The benchmark interest rate set by a central bank to influence borrowing costs, inflation, and economic activity.
Basis Point (bp) — One one-hundredth of a percentage point; 25 basis points equals 0.25%.
Relative Strength — A measure of how a market, sector, or asset performs compared with another market or benchmark.
Overweight / Underweight / Neutral — Portfolio positioning terms: overweight means above benchmark allocation, underweight means below benchmark allocation, and neutral means roughly in line with the benchmark.
