The Day Hagan Logix Tactical Dividend Strategy (DHLTD) outperformed both its Russell 1000 Value benchmark and the S&P 500 during a difficult month of May for the markets. Year to date through May 31, 2019, DHLTD is now +6.77%*, while continuing to hold a defensive cash position throughout the year, versus the Russell 1000 Value at +8.45%. Over a rolling five-year period, DHLTD is in line with its benchmark performance-wise, while maintaining a low beta of 0.80 during that timeframe. Since our 2002 inception, DHLTD has returned +9.00%* (beta of 0.63), well ahead of the Russell at +6.96% and S&P 500 at +7.39%, showing the value of downside protection through multiple market cycles, including the internet meltdown and the financial crisis. All numbers are gross of fees and total return.

Our Specialized REIT holdings led performance for the month of May. In fact, REITs more generally showed the only positive S&P 500 sector performance during the month, providing a hedge during a declining rate environment. What’s interesting to note is that our Specialized REITs (American Tower, ticker AMT: Communications towers; Public Storage, ticker PSA: Self-storage; Starwood Property Trust, ticker STWD: Commercial mortgage-backed securities, lending and servicing; Ventas, ticker VTR: Senior housing and life sciences real estate projects) meaningfully outperformed the broader REIT sector in May (~+4%* vs. the S&P 500 REIT Sector Index +1.16%). We believe this is an indication of the importance of not only industry/sector selection but also individual equity differentiation within screened industries. Specialized REITs have led performance not only for the most recent month but the year to date period as well.

On the subject of industry holdings and differentiation, retail provides another noteworthy case study. We typically buy unloved and underappreciated industries that meet our criteria in terms of trough valuations. However, given the current brick & mortar retail environment, a healthy skepticism for any retailer is more than fair. For the year to date through mid-May, 6,400 retail stores had shut down in the U.S., which is not only already ahead of store closures in all of 2017, but is on track to beat the record historically for number of closings in a calendar year (source: Coresight). However, similar to the REIT comparison in the paragraph above, our (specialty) retail holdings are somewhat more differentiated than the broader retail industry. This shows from a performance perspective as, year to date through 5/31, the XRT (the S&P Retail ETF) was -3.43% while the Day Hagan Logix specialty retail industry grouping was up nearly 11%. In addition, strong retail returns over time for the portfolio are not only about buying and holding but also selling at opportune times based on hitting our measures of a company’s fair market value (FMV). One recent example of this is the timing of our Lowe’s Companies (LOW) sale within specialty retail. We purchased LOW in June 2017 at about $79/share* and sold it in September 2018 at close to $113/share*, around our measure of FMV. Currently the stock is trading at around $94/share.

Another recent example of an appropriately timed sale (while also enduring significant volatility throughout the holding period) relates to Qualcomm (QCOM). QCOM was purchased for the portfolio in September 2017 at around $52/share*. Over the last year, the stock price went up to $72 before tumbling down to below our entry point based largely on significant news flow around royalty disputes. Frustrating to be sure, but given our entry point and process, we had conviction around our upside, regardless of the outcome of legal issues. In April, we sold QCOM after it hit our measure of fair market value at around $81/share* after the company announced a royalty resolution with Apple. Today, with uncertainty around a recent federal ruling against QCOM related to suppressed competition, the stock is back down to the high $60s. While we aren’t trying to be market timers, we follow an objective process of selling at or near our price targets, with an awareness and understanding of what’s driving volatility in a portfolio position along the way. At times, by selling at fair value, we may give up additional upside in a given holding—although more often it works to our advantage. In the big picture of upside/downside capture and risk management, and as always focused on market cycle outperformance, we are comfortable that the Day Hagan Logix approach optimizes risk-return.

Currently, the DHLTD portfolio holds seven industries and twenty-nine equities across sectors with an atypically large cash position of about 25%. The cash position reflects the output of our disciplined strategy. We have strong conviction around the upside of what we currently hold, but there are not enough opportunities to be more fully invested. In fact, what we do hold we see as having about 62% upside based on our price targets/measures of fair market value. This reflects our belief that we can generate attractive absolute returns and upside capture percentages even while holding a defensive cash portion in our portfolio. We mentioned previously that we have performed ahead of our benchmark over the rolling five-year period. This was accomplished while holding some level of cash in the portfolio throughout the last five years.

Is holding a level of cash prudent in the current market environment? Our process, the foundation of which has been consistent for over 17 years, would answer with a definitive yes. We strive to be fully invested and are always opportunistic in the name of putting cash to work (in fact, we currently see opportunities in various industries that are approaching trough valuations). However, we also see the same kinds of valuation signals in our eligible universe that we saw in years like 2002 and 2008. The precise timing of cash being a value-added hedge is always up for debate, but based on our process, we’d rather be early and in position to protect (while generating healthy returns in the remainder of the invested portfolio) should a significant market correction scenario present itself.

We welcome ongoing dialogue and your questions. Please feel free to reach out any time.


  • 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 June 2019 (PDF)

*Net return for the strategy year-to-date through May 31, 2019 is +6.41%. Net return for the strategy since inception through May 31, 2019 is 7.94%.

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.

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.

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.