A Quarter Review
It was a quiet finish to an otherwise solid year in the bond market. The Federal Reserve delivered its third and final interest rate cut of the year in December, despite growing disagreement among FOMC members. As a result, short-term rates fell modestly, while long-term interest rates edged slightly higher. Short duration corporate bond spreads widened 5 basis points but have remained tightly rangebound following the market volatility around April’s “Liberation Day.” Economic data has started to be released following the prolonged government shutdown, though the reliability of some data points may have been impacted. Notably, the unemployment rate for October will not be reported. November’s employment report highlighted a weaker job market, with the unemployment rate rising to a cycle high of 4.6%, but the market mostly shrugged it off. Similarly, the November CPI report showed lower-than-expected inflation, which was dismissed as an anomaly due to missing October inflation data. Despite the noisy fall data, we continue to believe that inflation is slowly moderating, while the labor market is gradually softening.
Performance Summary
The Johnson Enhanced Index Strategy returned 2.53% net of fees during the fourth quarter, underperforming the S&P 500 Index which closed the quarter up 2.66%. The primary driver of the Strategy’s underperformance were returns in the bond portion of the portfolio that slightly lagged the embedded cost-of-carry within its equity futures contract positions. Cost-of-carry remains somewhat elevated, but has moderated since the Federal Reserve began reducing its Fed Funds rate in late 2024 and eased further during the fourth quarter as the Fed enacted two additional rate cuts.
The fourth quarter capped off a strong year for the Johnson Enhanced Index Strategy. For the full year, the Strategy returned 18.43% net of fees, outperforming the S&P 500 by 55 basis points. The primary driver of full-year relative performance were returns in the bond portion of the portfolio that exceeded the embedded cost-of-carry within its equity futures contract positions. Within the bond portfolio, the Strategy’s allocation to the corporate bonds and agency MBS sectors were particularly additive to relative performance during the year.
Market Outlook and Portfolio Positioning
As we turn our attention to the year ahead, we believe our high-quality investment approach is well positioned for the current environment. While late-year economic data was disrupted by the government shutdown, most indicators of labor market activity continue to point to a subdued pace of hiring. This backdrop should allow the Federal Reserve to continue lowering interest rates toward its estimate of neutral, around 3%.
Although credit spreads remain tight, our high-quality security selection discipline positions the Strategy well for potential volatility. Beyond macroeconomic factors, one potential catalyst for wider spreads could be increased supply in the investment-grade market. As hyperscalers increasingly turn to the bond market to finance capital expenditures, credit investors may start to demand a higher spread premium to Treasuries. Should that dynamic play out, the Strategy’s underweight to technology names with very tight spreads should be beneficial.
As always, we remain committed to delivering high-quality fixed income portfolios designed to provide consistency and stability across a wide range of market environments.
Our primary objective is to outperform the S&P 500 Index with low tracking error and comparable volatility by replicating the Large Cap Equity market using Index Futures, combined with short duration investment grade Fixed Income securities. For more information on our products and services, please contact a member of our Sales & Client Service Team at 513.389.2770 or info@johnsonasset.com.
Published 01/27/2026
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 December 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 (GIPS). A complete list of firm composites and performance results and the policies for valuing investments, calculating performance, and preparing GIPS Reports are available upon request by calling 513-389-2770. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. The Enhanced Index composite was created on January 1, 2005 with a composite inception of 7/31/2004, and includes all fee paying, fully discretionary equity portfolios with a minimum of $1,00,000 and an investment objective of replicating the S&P 500 Index, utilizing equity futures contracts and short duration fixed income securities. The benchmark for this composite is the S&P 500 Index, a broadly diversified largecap equity universe of U.S. companies. Eligible new portfolios are included in the composite the first full month after being deemed fully invested. The returns from terminated portfolios are included prior to the date of termination. Effective January 2010, a portfolio will be temporarily removed from this composite if it experiences a net inflow or outflow of cash of 30% or more during a one-month period. Other than the futures contracts that are utilized to replicate the S&P 500, no leverage is used in the Composite portfolios. Portfolios in this composite include cash, cash equivalents, investment securities, interest and dividends. The U.S. dollar is the base currency. 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. The investment management fee schedule for this strategy is as follows: 0.25% on the first $50 million, 0.20% on the next $50 million, 0.10% on the next $400 million, and 0.05% thereafter. The highest investment management fee schedule for this strategy is 0.25%. Actual client returns could also be reduced by brokerage commissions, custodial fees, and other client paid expenses detailed in JIC’s Form ADV Part 2A.
