For the month of June, the Day Hagan Logix Tactical Dividend strategy (DHLTD) returned +4.78%* while maintaining a defensive cash position based on our disciplined, consistent methodology. The Russell 1000 Value Index benchmark returned +7.18% and the S&P 500 returned +7.05% for the month. For 2019, year to date, DHLTD is now +11.86%*, again while holding cash throughout the year alongside the invested portfolio. All numbers are total return and gross of fees.

Risk management has been and always will be critical to the strategy’s long-term success. Over a market cycle, we continue to be focused on downside protection, capital appreciation and cash flow from dividends to generate attractive absolute and relative returns. Since inception, DHLTD has returned +9.24%* annually while the Russell has returned +7.35% (and the S&P 500 +7.78%), showing upside/downside capture at 76.26%/55.70% respectively and a beta of 0.63.

Importantly, over the past ten years (ending June 2019), during what is arguably one of the greatest periods of outperformance for growth relative to value, the Logix Tactical Dividend strategy has captured 96.6% of the Russell 1000 Value Index’s annualized gains and 87% of the S&P 500’s (Total Return) annualized gains. Furthermore, our strategy has generated positive alpha of 2.08 versus the Russell 1000 Value Index and a positive alpha of 1.89 versus the S&P 500 TR. Alpha is a term used in investing to describe a strategy’s ability to beat the market, or its edge. It’s the [risk-adjusted] excess return of an investment relative to the return of a benchmark index. Alpha may be positive or negative and is the result of active investing.1

Furthermore, the strategy’s beta illustrates that our results over the last ten years were achieved with 21% less volatility risk than our primary benchmark. Similarly, over the past five years, the strategy has returned 95% of the primary benchmark return, also with 21% less volatility risk and a positive alpha.

As a deep value strategy, while we consider ourselves differentiated from traditional value managers, we note that value stocks are trading at record discounts to growth stocks and the broader markets. In fact, by most measures we are currently in the longest period of growth stock outperformance in market history. While we can debate the reasons for this and what the future looks like, the reality is that we feel confident based on history that DHLTD can generate attractive absolute and relative returns regardless of where style leadership goes from here. This is true even with defensive portfolio positioning whenever our process deems it necessary.

Consistent with an objective process that involves identifying industries and underlying equities at what we view as trough valuations, we began building a position in regional banks during the third week of June. More specifically, we added Comerica (CMA), Regions Financial (RF), and U.S. Bank (USB) to the portfolio. At the same time, we also trimmed one of our specialized REIT holdings, American Tower (AMT), which had returned about 62% since March 2018 purchase. Net of these transactions, we reduced our cash position to just under 20% of the portfolio.

All three of the bank stocks we purchased screened strongly based on our in-depth valuation and fundamental criteria. In addition, each company has what we view as positive, differentiating characteristics. In addition to retail consumer banking, Comerica (CMA) has a high concentration in small and mid-sized business commercial banking, allowing for a deeper, advisory relationship with customers. It has also grown its presence in high opportunity geographies like Texas and California while maintaining a strong base in Michigan. CMA has grown its presence outside of Michigan with a focus on risk management. For example, while continuing to show broad-based loan growth and a meaningful presence in Texas, less than 5% of its total loan book is in the energy sector.

Regions Financial (RF) is dominant in its home state of Alabama. It is also blanketing other southern states with a notable presence in growth markets like Atlanta, Houston, and Orlando. RF has finally moved on (and learned) from its ill-fated AmSouth Bank acquisition prior to the financial crisis, reducing its residential loan book from 40% to 15% with an increased focus on commercial lending. It’s increasing level of diversification goes beyond a healthy mix between consumer and commercial banking, as it makes strides in fee-based mortgage banking and wealth management.

U.S. Bank (USB) is the largest of the three purchased stocks. It is also the largest of the regional banks that is not labeled as a global systematically important bank (GSIB), which allows it to avoid more onerous regulatory requirements and maintain strong relative regulatory cost positioning. USB also has many scalable, fee-based businesses (payments, wealth management and trust among them) that help a bank of its size better weather rate volatility. USB is ahead of the curve on technology, with over 30% of loans last quarter generated digitally, allowing it to reduce its brick and mortar branch footprint. The company maintains an ongoing focus on cost containment and strong underwriting (net charge-offs peaked at an attractive 2.5% during the financial crisis), leaving it well positioned for any potential downturn.

The second quarter ended with the invested portfolio holding eight industries and 32 underlying equities, in addition to the defensive cash position. Tyson Foods (TSN), within the food processing industry, is our best-performing position year to date (returning over 50%), responding well after a difficult 2018. Specialized REITs, even with a modest June, lead performance of our industry groupings, up over 24% for the year.

During the month of June, although all of our industry groupings were up, Medical Distributors showed particular strength, up nearly 11%. Our “Big 3” distributors holdings, AmerisourceBergen (ABC), Cardinal Health (CAH), and McKesson (MCK), were all up in low double digits for the period. We have maintained the point of view that exaggerated negative scenarios, on issues including pharmaceutical pricing, were already baked into these stocks. A positive data point on generic pharmaceutical pricing came from Jefferies research at the end of June, suggesting that year-over-year generic prices were up for the first time in nearly three years, with branded drugs maintaining mid-single digit growth. Regardless of that single data point, broader drivers like demographics and new drug launches, among other tailwinds, should lead to more attractive pricing economics for the Big 3 distributors than currently anticipated.

It’s also important to remember the sheer size of the Big 3 and, regardless of Amazon’s intentions in pharmaceutical distribution, the barriers to entry in directly competing against complex, regulated distribution channels and entrenched relationships with long-term contracts. MCK, ABC, and CAH had combined fiscal year 2018 revenues of nearly $500 billion and continue to grow, generating meaningful free cash flow.

As we embark upon the second half of the year, we welcome the opportunity to explain why we believe we are attractively positioned moving forward. Please feel free to call or email us anytime to set up a conversation.


  • Robert Herman, MBA

  • Donald L. Hagan, CFA

  • Jeffrey Palmer, CIPM

  • Arthur S. Day

  • Steve Zimmerman, MBA

  • Regan Teague

Print Copy of Article: Day Hagan Logix Tactical Dividend Strategy Update July 2019 (PDF)

1 As defined by Investopedia.

Day Hagan Logix is registered as an investment adviser with the United States Securities and Exchange Commission. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Day Hagan Logix claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Day Hagan Logix has been independently verified for the periods April 30, 2002 through December 31, 2018. A copy of the verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. Calculation Methodology: Pure gross of fees returns are calculated gross of management, custodial fees and transaction costs and are shown as supplemental information. Net of fees returns are calculated net of actual management fees, transaction costs and gross of custodian (trust) fees. Net of fees returns for wrap accounts are calculated net of management fees, transaction costs and all administrative fees charged directly to the client by the broker-dealer. Net return for the strategy year-to-date through June 30, 2019 is +11.49%.

 The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. Indexes are unmanaged, fully invested, and cannot be invested in directly. The S&P 500® Index is a broad-based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general.

Alpha is a statistical measure that calculates an active manager’s return in excess of a benchmark index or a “risk-free” investment.

Beta measures a portfolio’s volatility relative to its benchmark. A beta greater than 1 suggests the portfolio has historically be more volatile than its benchmark. A beta less than 1 suggests the portfolio has historically been less volatile than its benchmark.

Disclosure: *Note that individuals’ percentage gains relative to those mentioned in this report may differ slightly due to portfolio size and other factors. The data and analysis contained herein are provided "as is" and without warranty of any kind, either express or implied. Day Hagan Logix (DH Logix), any of its affiliates or employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any DH Logix literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DH Logix, accounts that DH Logix or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. DH Logix uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. The performance of DH Logix’s past recommendations and model results are not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.

There is no guarantee that any investment strategy will achieve its objectives, generate dividends or avoid losses.