A Quarter Review
SMID Cap equities corrected in the first quarter, marking their worst start to a year since 2020. The downturn began in January, triggered by a correction in AI-related technology stocks amid rising competition from Chinese firms. Markets were further unsettled by a dramatic shift in global trade policy under President Trump, who announced a series of escalating tariffs levied on most U.S. trading partners.
Inflation concerns were reflected in rising commodity prices, and as tariff uncertainty increased, so did the odds of recession. The best performing sectors were those that typically exhibit defensive characteristics, such as Utilities, Consumer Staples, and Real Estate. Global growth beneficiaries that are especially impacted by tariffs, such as Technology and Consumer Discretionary, were repriced much lower with a more uncertain economic outlook.
Performance Summary
The SMID Cap Core Strategy delivered a net return of -4.75% in the first quarter, outperforming the Russell 2500 Index’s -7.50% return.
The relative outperformance can be attributed to an emphasis on high-quality investing. The Strategy’s multi-factor emphasis on quality, valuation, and momentum helped limit exposure to the sharp drawdowns in expensive growth stocks. An overweight to Mid Cap stocks was advantageous, limiting exposure to the weaker Small Cap area. Security selection was the primary driver of excess return with notable contributions from positioning in the Health Care, Industrials, and Consumer sectors.
1) Past performance is not indicative of future results, and there is a risk of loss of all or part of your investment. The above does not represent all holdings in the Strategy. Holdings listed might not have been held for the full period. To obtain a copy of Johnson Asset Management’s calculation methodology and a list of all holdings with contribution analysis, please contact your service team. The data provided is supplemental. Please see important disclosures at the end of this document.
2) Holdings are subject to change. Past performance is not indicative of future results, and there is risk of loss of all or part of your investment. The data provided is supplemental. Please see disclosures at the end of this document.
Market Outlook and Portfolio Positioning
Trade-related uncertainty and market volatility have intensified so far in the second quarter. The outlook remains clouded by unpredictable tariff negotiations and heightened global policy risks—fiscal, monetary, and geopolitical.
Economic stress seems unavoidable as tariffs pressure profit margins and customer confidence wanes. SMID Cap earnings growth has been lackluster since 2021, but the mid-teens recovery currently expected in 2025 is getting harder to endorse. Analyst estimates continue to decline, and the first quarter results are likely to show negative growth.
This lack of earnings visibility complicates the valuation puzzle. Smaller companies are facing more earnings pressure than large companies, but SMID Cap stocks continue to trade at a steep historical discount to Large Cap. The team is actively seeking selective opportunities in attractively valued Small Caps and quality cyclicals—but only where earnings projections appear durable and achievable.
Markets are struggling to digest the implications of tariff levels not seen since the 1930s. Against this backdrop, risk management remains a priority. The Strategy’s emphasis on quality and downside protection is well-suited to navigate this period of elevated uncertainty
The Johnson SMID Cap Core Equity Strategy seeks to consistently outperform the Russell 2500 Index over a full market cycle with less volatility. The Strategy seeks to identify stocks that are making smart allocation decisions, with a favorable combination of quality, valuation, and momentum characteristics. 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 04/21/2025
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 (GIPS). 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. A complete list of firm composites and performance results and the policies for valuing portfolios, calculating performance, and preparing GIPS compliant presentations are available upon request by calling 513-389-2770. Composite: The Johnson SMID Cap Core Equity Composite was created on January 1, 2013, and includes all of JIC’s fee paying, fully discretionary institutional equity portfolios with a minimum of $1,000,000 and an investment objective of small and mid-cap equities. The benchmark for this composite is the Russell 2500, a broadly diversified mid and small cap 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 highest investment management fee schedule for this strategy is 1.00%. 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.
