CWS: 3rd Quarter 2026 Portfolio Review

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Overall, the third quarter of 2026 was a decent quarter for Wall Street. The S&P 500 gained 2.03%. The Nasdaq was up 2.47%, and the Dow lost 2.70%.

During the quarter, the Federal Reserve voted to increase interest rates for the first time in three years. More hikes may be on the way. The corporate earnings outlook remains strong, and the economy continued to expand. It seems that Americans have gotten used to the “no hire, no fire” economy.

During Q3, the traded shares of the AdvisorShares Focused Equity ETF (CWS) fell 2.70% (market), and the Net Asset Value fell by 2.69%. For the quarter, the S&P 500 Total Return Index gained 2.30%.

Source: StockCharts.com; from 07.01.2026 to 09.30.2026. Past performance is no guarantee of future returns.

The real attention lately has been on the bond market. Yields continue to be high, and it appears that yield increases are themselves increasing. In February, the yield on the 10-year Treasury was just under 4%. Now it’s up to 5.26%, which was Q3’s closing yield.

This impacts just about anything you borrow money for (houses, cars, vacations). The average 30-year fixed-mortgage rate spiked to 7.28%. The Fed may be poised to raise rates again in Q4.

Let’s review some of the important economic trends toward the end of Q3. Headline PCE, which is the Fed’s preferred measure of inflation, rose by 0.3% in September. The core rate rose by 0.2%. Personal income rose 0.2%. Nominal consumer spending jumped 0.9%, and real spending rose 0.6%.

The third estimate for Q2 GDP growth was revised up to a 2.2% annualized rate, from 1.5% in the second estimate. Earlier quarters were also revised higher in the annual update.

The job-openings report (the JOLTS report) was little changed at 7.1 million. Hires were 5.2 million and separations 5.1 million. Layoffs were essentially flat. That is still a low-hire, low-fire economy.

ISM manufacturing was 54.5, essentially unchanged from 54.6 and slightly under consensus. This marks the ninth month of expansion. Overall, this is a mixed picture. There are reasons for optimism, but those higher interest rates are not helping.

Let’s look at some of the stocks that drove our performance during Q3.

At the end of Q3, FactSet (FDS) reported its fiscal-Q4 earnings. For the quarter, FactSet earned $4.52 per share. That’s up 11.6% over last year, and it beat the Street by 17 cents per share. For the whole year, FactSet made $18.01 per share. That’s an increase of 6.1%. FactSet’s full-year guidance had been for $17.25 to $17.75 per share.

Overall, it was a solid quarter for FDS. Organic revenues were up 7.1%, and organic ASV increased by 7% to $2,568.2 million. Annual ASV retention is above 95%. During Q4, average renewal-contract length increased by about 30%.

During Q4, FactSet returned more than $179 million to shareholders. That’s $138 million in buybacks and $41 million in dividends. During fiscal 2026, FactSet returned $808 million to shareholders and raised its dividend for the 27th year in a row.

CEO Sanoke Viswanathan said, “FactSet delivered strong results, highlighted by a record increase in organic ASV for both the fourth quarter and fiscal year with continued momentum across our AI and data solutions.”

For Q4, net cash provided by operating activities was $204.7 million, and free-cash flow was $177.3 million. This was the 30th consecutive year in a row that FactSet has increased its earnings, and revenues are up 47 years in a row.

For 2027, FactSet expects organic ASV to be up 5% to 6.5% and revenues to be between $2.6 and $2.625 billion. FactSet also expects earnings to be between $19.25 and $19.65 per share.

I was pleased to see that Moody’s (MCO) reported very good second-quarter earnings. For Q2, Moody’s organic revenues were up 16%, and the company expanded its operating margin by 440 basis points to 55.3%. MCO’s earnings were up 31% to $4.68 per share. That easily beat Wall Street’s consensus of $4.25 per share.

Let’s dig into some details. Moody’s operating-cash flow for this year is up 32% to $1.7 billion, and its free-cash flow is up 34% to $1.5 billion.

Revenue for Moody’s Investors Service rose by 25% to $1.26 billion. Revenue for Moody’s Analytics rose by 4% to $925 million. Operating margin for the Investors Service business is over 68%. So far this year, Moody’s has bought back $2.2 billion in shares, and the company expanded its buyback program to $3 billion.

Moody’s also raised the low end of its full-year guidance by 10 cents per share. Moody’s now sees 2026 earnings of $16.50 to $17.00 per share. The company has already made $9.00 per share for the first half of this year.

Thermo Fisher Scientific (TMO) started off the year terribly for us, but it’s been rallying at an impressive clip. We recently got more good news when Thermo reported that its Q2 earnings rose 13% to $6.03 per share. That beat Wall Street’s forecast for $5.71 per share. Thermo’s revenues were up 10% to $11.99 billion, and organic revenue was up 5%.

During Q2, Thermo announced the divestiture of its microbiology business, and it bought back $1.0 billion of stock. CEO Marc N. Casper said, “At the halfway point of the year, we are well positioned to deliver a great 2026 and build an even brighter future for our company.” Thermo’s operating margin improved by 90 basis points to 22.8%.

Source: StockCharts.com; from 04.01.2026 to 10.05.2026. Past performance is no guarantee of future returns.

On the earnings call, Thermo raised the low end of its revenue guidance by $100 million. The new range is $47.4 billion to $48.1 billion. That represents 6% to 8% growth over 2025.

Thermo also increased its EPS range to $24.93 to $25.33. That’s 9% to 11% growth over 2025. The prior range had been for $24.64 to $25.12 per share.

Mueller Industries (MLI) gave us another solid earnings report. For Q2, Mueller’s sales rose 25% to $1.43 billion. Muller’s earnings increased two cents to $1.13 per share. Since Mueller is largely ignored by Wall Street, we can’t say if that beat consensus or not. There is no consensus.

Mueller’s operating income increased by 15.7%. During the quarter, copper averaged $6.16 per pound, which is a 30.6% increase over last year’s Q2.

CEO Greg Christopher said, “We delivered consistent year-over-year earnings growth and executed at a high level. Business demand continues to strengthen in our commercial, industrial and electrical markets. Backlogs are strong, and we are carrying out our 2030 strategic-plan initiatives with a high sense of urgency.”

During Q2, Mueller generated $212 million in cash from operations. They used $138 million to buy Bison Metals Technologies LLC.

In July, Comfort Systems USA (FIX) reported very good results. FIX said it made $12.53 per share for its Q2. That easily beat Wall Street’s forecast of $10.46 per share, and it nearly doubled last year’s Q2 profit of $6.43 per share.

For Q2, revenue was $3.27 billion, compared with $2.17 billion in 2025. FIX reported operating-cash flow of $1.14 billion, compared with $252.5 million last year.

CEO Brian Lane stated, “As compared to the same quarter last year, Comfort Systems USA is reporting a 50% increase in revenue, a 92% increase in per-share earnings, and remarkable and completely unprecedented quarterly cash flow of more than $1 billion.”

At the end of the quarter, backlog stood at $14.06 billion, compared with $12.45 billion for Q1 and $8.12 billion for last year’s Q2.

Amphenol (APH) reported an outstanding quarter for its Q2. Sales were up 55% to $8.8 billion, and organic sales were up 30%. The company had orders of $10.7 billion for a book-to-bill ratio of 1.23:1. Earnings were up 67% to $1.35 per share. That sailed past Wall Street’s consensus for $1.19 per share.

Amphenol’s operating margin was nearly 30%. That’s a good sign of business efficiency. APH’s operating-cash flow was $1.6 billion, and free-cash flow was $1.2 billion. During Q2, Amphenol bought back 1.5 million shares of its stock for $208 million, paying dividends of $307 million.

Source: StockCharts.com; from 04.01.2026 to 10.05.2026. Past performance is no guarantee of future returns.

Thanks to the better-than-expected performance of CommScope, Amphenol now expects the acquisition to generate full-year sales of $4.6 billion and earnings of 30 cents per share. That’s up from the prior forecast for sales of $4.1 billion and earnings of 15 cents per share.

Let’s look at guidance. For Q3, Amphenol expects sales between $9.3 and $9.4 billion. That’s growth of 50% to 52% over last year’s Q3. Amphenol sees earnings ranging between $1.40 and $1.42 per share. That’s growth of 51% to 53%.

Amphenol has been a good stock for us, but it got caught up in the chip meltdown in July. This report tells us that business is going strong. In two days, the stock rallied more than 11%.

Sprouts Farmers Market (SFM) is in the middle of a turnaround. The good news is that Sprouts is steadily getting better. For Q2, SFM’s net sales were up 5% to $2.3 billion, and comparable-store sales were down 1%. That was expected.

Earnings came in at $1.37 per share, which was a three-cent beat. Last quarter, Sprouts opened seven new stores. It now has 490 stores in 25 states. Sprouts ended the quarter with $224 million in cash and no balance on its credit facility.

For Q3, Sprouts sees earnings between $1.20 and $1.24 per share, and comparable-store sales between -0.5% and +1.5%. For the full year, SFM expects earnings of $5.32 to $5.40 per share and comparable-store sales of -0.5% to +0.5%.

On Wednesday, American Water Works (AWK) reported Q2 earnings of $1.61 per share. That’s up 8% over last year, and it beat Wall Street’s view by six cents per share. The company is in the process of merging with Essential Utilities.

CEO John Griffith said, “The company has delivered solid results for the first half of the year, and we are pleased to have received a constructive decision in our Pennsylvania general-rate case to begin the second half of 2026.”

American Water is standing by its full-year guidance of $6.02 to $6.12 per share. The company has already made $2.62 per share for the first half of this year. American Water is not a fast-growing company, but it is a dependable one. AWK currently pays a dividend of 89.5 cents per share. The yield currently works out to 2.62%.

Intercontinental Exchange (ICE) said its Q2 earnings rose 5% to $1.90 per share for a six-cent beat, and its sales were up 5% to $2.7 billion.

Through June 30, ICE has returned $1.8 billion to shareholders. The board approved an increase of $4 billion to the current buyback authorization.

ICE had exchange net revenues of $1.5 billion, fixed-income and data-services revenues of $645 million and mortgage-technology revenues of $557 million. ICE’s Q2 operating margin was 61%. Operating-cash flow was $3.3 billion, and free-cash flow was $2.6 billion.

ICE also said that it’s buying MarketAxess Holdings (MKTX) for $6 billion.

Stryker (SYK) said it made $3.69 per share for its Q2. That’s up 17.9% over last year, and it’s 20 cents better than Wall Street had been expecting. Stryker’s net sales rose 9.4% to $6.6 billion, and its organic net sales increased 9.0%. The company’s operating margin increased by 170 basis points to 27.4%,

Stryker has two operating units. Sales at MedSurg and Neurotechnology increased by 9.7% to $3.6 billion. For Orthopaedics, sales were up 9.1% to $3.0 billion.

Stryker slightly adjusted its full-year guidance. The company raised the low end of its range by five cents per share. Stryker now sees 2026 earnings between $14.95 and $15.10 per share. The company expects sales growth this year of 8.3% to 9.3%. The previous guidance had been for from 8% to 9.5%.

Ticker	Security Description	Portfolio Weight %
FIX	COMFORT SYSTEMS USA INC	7.38%
IESC	IES HOLDINGS INC	6.73%
SAIC	SCIENCE APPLICATIONS INTE	5.20%
APH	AMPHENOL CORP-CL A	5.16%
TMO	THERMO FISHER SCIENTIFIC INC	4.88%
ALSN	ALLISON TRANSMISSION HOLDING	4.73%
HSIC	HENRY SCHEIN INC	4.59%
CASY	CASEY’S GENERAL STORES INC	4.53%
MCK	MCKESSON CORP	4.34%
MLI	MUELLER INDUSTRIES INC	4.30%

As of 09.30.2026. Holdings subject to change.

The stock market faces a few hurdles as we head into the final three months of 2026. The midterm election is in November. Divided government could lead to another government shutdown.

There are also several geopolitical risks. The world’s a dangerous place, and several flashpoints could cause mayhem for our markets. The conflict with Iran has disrupted world oil markets. Inflation is still a problem, but the Federal Reserve has said that it’s committed to bringing inflation back down to its target rate.

We should also be concerned with the state of the economy. Gains in the labor market have slowed to a crawl. We still want to see workers get higher wages. That’s good for them and good for our stocks.

I’m forecasting a potentially conservative and bullish environment for the rest of this year, but there will be weak areas. The housing market is a good example. Housing costs are too high, and the entire industry is at the mercy of higher interest rates.

I hope to see a favorable earnings environment for Q4 and 2027. If any damage comes to the stock market, conservative stocks may fare much better. This is good news for the AdvisorShares Focused Equity ETF (CWS). I remain optimistic about the companies in our portfolio and believe our emphasis on high-quality businesses with conservative balance sheets may help the fund navigate the market environment outlined above.

In a first for the ETF industry, the portfolio strategist of CWS has “skin in the game.” The strategist’s compensation is directly tied to portfolio’s performance. Using the trailing 12-month returns of CWS vs. its S&P 500 Index benchmark, stronger outperformance is rewarded with a larger management fee while weaker underperformance is penalized with a smaller management fee.

After the Fund’s March performance, the CWS fulcrum fee will be 0.65% in October 2026.