SMID Cap Core 4Q 2025 Commentary Video Update

• Market Environment: Q4 capped a volatile year, with late-quarter stabilization and early signs of improved breadth across SMID Cap stocks.
• Style Trends: Lower-quality, higher-volatility stocks led much of 2025, though high-quality and mid-cap stocks began to recover late in the year.
• Performance: The SMID Cap Core Strategy returned +1.4% net, trailing the Russell 2500’s +2.2%, with most underperformance occurring early in the quarter.
• Attribution: Security selection was the primary headwind, particularly in Technology, Industrials, and Health Care, where speculative stocks outperformed.
• Positive Contributors: Consumer holdings and Financials selection added value, while an underweight to biotech limited gains in Health Care.
• Earnings & Valuation: SMID Cap earnings growth is expected to accelerate, with forecasts calling for ~15% near-term growth and stronger gains into 2026, alongside attractive valuations vs. Large Cap.
• Outlook: The strategy remains focused on high-quality companies and disciplined positioning, with SMID Caps well positioned for long-term relative outperformance.

Hello, I am Brian Kute, Senior Portfolio Manager at Johnson Asset Management.

I will provide a brief quarterly update on our SMID Cap Core strategy.

The fourth quarter provided a relatively calm finish to what was a rollercoaster year for equity markets.

In 2025, high-quality SMID Cap stocks underperformed by the widest margin since 2009.

From April through October, lower-quality and higher-volatility stocks led the market recovery.

November and December marked a broadening of though, with mid-cap stocks recovering ground lost earlier to small caps and high-quality stocks beginning to improve their relative performance.

The SMID Cap Core strategy returned 1.4% net of fees during the fourth quarter, compared to 2.2% for the Russell 2500 Index.

The majority of the underperformance occurred in October, driven by our high-quality bias during a period when lower-quality stocks continued to lead.

Security selection was the primary headwind, particularly in sectors with wide quality dispersion such as Technology, Industrials, and Health Care, where some of the best performers were highly speculative companies that fell short of our quality mandate.

Within Technology, software stocks — which are typically more stable than semiconductor stocks — faced pressure amid concerns around potential AI disruption to established business models.

Health Care was the portfolio’s strongest-performing sector, but an underweight to biotechnology — which rose more than 20% during the quarter — created a headwind at the industry level.

On the positive side, Consumer sectors contributed meaningfully, led by Coca-Cola Consolidated, the portfolio’s top-performing holding for the quarter and an underweight in Consumer Discretionary.

Financials security selection also added value.

Markets have spent much of the year digesting an unusually wide range of macro themes, including AI innovation, tariffs, shifting monetary policy, and geopolitical risk.

Despite these uncertainties, earnings risk has receded and valuations have risen.

Looking ahead, SMID Cap companies are expected to deliver approximately 15% year-over-year earnings growth in the fourth quarter, the fastest pace since early 2022, with consensus projecting an acceleration to nearly 30% growth in 2026.

While these forecasts tend to prove optimistic, we believe SMID Cap earnings growth is well positioned to outpace Large Caps, and with a meaningful valuation discount, a SMID Cap portfolio should be well positioned for attractive relative returns.

Thank you for your time.