Summary
- Market Backdrop: Q1 was driven by a surge in energy prices following U.S.–Iran tensions, pushing oil above $100 and lifting the Energy sector sharply.
- Rates & Impact: Higher inflation expectations pressured interest rates and delayed Fed rate-cut expectations, weighing on Financials.
- Performance: The SMID Cap Core Strategy returned -0.4% net, trailing the Russell 2500’s +2.0% gain.
- Attribution: Security selection was the primary driver of underperformance, with Technology and Industrials as the largest detractors.
- Positioning: A quality-focused approach limited exposure to more volatile energy segments, tempering upside during the oil rally.
- Outlook: SMID Cap valuations remain attractive, with strong expected earnings growth. The portfolio stays focused on high-quality opportunities and balanced positioning to capture upside while providing downside protection amid geopolitical uncertainty.
Video Transcript
Hello. I’m Brian Kute, Senior Portfolio Manager for the Johnson SMID Cap Core Strategy.
In this update, I will review first quarter performance and our strategic outlook.
Energy prices were the primary macro driver, as the U.S.–Iran conflict pushed oil above $100 per barrel and the Energy sector gained more than 38%.
Commodity-driven inflation placed upward pressure on interest rates and reduced expectations for near-term Federal Reserve rate cuts, contributing to the Financial sector’s underperformance.
For the quarter, the strategy returned -0.4% net of fees, underperforming the Russell 2500 Index, which gained 2.0%.
Relative results were driven primarily by security selection, with Technology and Industrials as the largest detractors.
In Technology, our overweight to software and services and underweight to hardware and semiconductors weighed on results.
In Industrials, returns were also pressured by software exposure and weakness among non-defense government contractors.
While we maintained a near market-weight Energy allocation, our quality-focused approach limited exposure to more volatile E&P and oilfield service companies that were bigger beneficiaries of the oil price spike.
Looking ahead, energy prices remain a key uncertainty.
The oil futures curve implies lower prices later this year, which likely reflect expectations for faster resolution in Iran.
Economic conditions remain resilient, credit spreads are non-recessionary, and markets have repriced geopolitical risk in an orderly manner.
The relative growth and valuation for SMID Cap seems attractive.
Consensus expects 2026 EPS growth of 29% for the Russell 2500 versus 17% for the S&P 500, while SMID caps continue to trade at a meaningful discount to their historical relationship with large caps.
Portfolio activity focused on selectively adding high-quality businesses at attractive valuations across biotechnology, investment banking, aerospace, and automotive retailing.
If geopolitical risks ease and earnings continue to improve, we would expect leadership to broaden toward higher-quality companies; if risks rise, we believe the portfolio’s lower-volatility profile should provide relative downside protection.
Thank you for your interest and we welcome you to reach out with any questions.
Published 04/27/2026
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, 2026 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.
