Summary
- Performance: Johnson Equity Income returned +3.0% net of fees in Q2, trailing the S&P 500’s +10.9% gain. Year-to-date, the strategy is up +4.1%, compared to +6.2% for the index.
- Market Shift: A sharp reversal in market leadership followed the April tariff-pause announcement, with expensive mega-cap growth and AI-exposed stocks rebounding strongly.
- Sector Impact: Underweights in Communication Services and Information Technology detracted from relative returns, while an overweight in Health Care also weighed on results.
- Positioning Effect: An overweight in Industrials contributed positively, while an underweight in Real Estate added value during a challenging quarter for the sector.
- Stock Selection: Limited exposure to the largest, most concentrated index constituents weighed on relative performance amid a mega-cap driven rally.
- Outlook: The strategy remains focused on capital preservation and long-term purchasing power through diversified portfolio construction, valuation discipline, high-quality companies, and durable cash flows.
Video Transcript
Hello, I’m Charles Rinehart, and I’m here with an update on the Johnson Equity Income Strategy’s performance for the second quarter of 2025.
Following a strong first quarter, the second quarter presented some challenges for the Equity Income Strategy.
The April 9th announcement of a 90-day pause on U.S. reciprocal tariff marked a turning point for markets that led the S&P 500 to rally approximately 25% from its April 8th low.
With the change in market direction and sentiment, underlying factor favoritism also reversed, with the worst underperformers of the 1st quarter - expensive mega cap growth and AI exposed stocks, outperforming meaningfully in the second quarter.
All told, the Equity Income Strategy returned +3.0% in the second quarter, trailing the S&P 500’s +10.9% return. YTD, the Strategy is up +4.1%, compared to +6.2% for the index.
As a result of the shift, both sector allocation and stock selection were a drag on relative performance in the quarter.
Our Strategy was notably underweight in Communication Services and Technology, two sectors that significantly outperformed the broader index year-to-date and especially surged after the tariff pause announcement.
Our overweight in Health Care and also detracted from relative performance during this period.
However, it wasn’t all headwinds—we did benefit from an overweight position in Industrials, which has emerged as the top-performing sector year-to-date, and from an underweight in Real Estate, which had negative returns during the quarter.
With the rebound of the largest stocks in the index, the S&P 500 continues to be extraordinarily concentrated.
As such, given our more diversified portfolio construction discipline, our relative returns continue to be impacted significantly by structural underweights to the largest names in the index, some of which are among our largest positions.
Looking ahead, we’ll continue to monitor market developments closely and adjust strategically to align with our long-term objectives.
Those objectives are a focus on capital protection and preservation as well as enhancing the spending power of capital over time.
We view the combination of a consistent valuation discipline and quality focus as the best means to reach those aims, regardless of the prevailing market environment.
Thank you for your continued trust and partnership.
Until next time, be well.
Published 07/22/2025
Johnson Asset Management (JAM) is a division of Johnson Investment Counsel, Inc. (“JIC”), an independent and privately owned Midwestern based investment advisory firm registered with the Securities and Exchange Commission. Johnson Asset Management manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, public and private retirement plans, and personal trusts of all sizes. It may also serve as sub-adviser for mutual funds. JIC’s fees are available upon request and may be found in our Form ADV Part 2A. Performance data quoted herein represents past performance. Past performance does not guarantee or indicate future results. All data is current as of March 31, 2025 unless otherwise noted. Returns and net asset value will fluctuate. To determine if this strategy is appropriate for you, carefully consider the investment objectives, risk factors, and expenses before investing. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing JIC’s strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by any Bank or any Bank affiliate, and MAY lose value, including possible loss of principal. Johnson Asset Management claims compliance with the Global Investment Performance Standards. The Institutional Core composite includes all fee paying, fully discretionary, actively managed institutional fixed income portfolios with a minimum value of $500,000 and an investment objective of broad investment grade, taxable fixed income, benchmarked against the Bloomberg U.S. Aggregate Index. The US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market.
JAM’s policies for valuing portfolios, calculating performance and preparing compliant presentations, as well as a complete list of composite descriptions are available upon request. Please contact our office at 513.389.2770 or 3777 West Fork Road, Cincinnati, OH 45247. All returns reflect the reinvestment of investment income (dividends and/or interest) and capital gains. Valuations and returns are stated in U.S. dollars. Trade date accounting is used. Portfolio returns are calculated using time weighed return methodology on a monthly basis. Net returns shown reflect gross performance less the highest fee schedule for this strategy. Actual client returns would also be reduced by brokerage commissions, custodial fees, and other client paid expenses detailed in JIC’s Form ADV Part 2A.
