A Quarter Review
Energy prices were the dominant macro driver in the first quarter as the U.S.–Iran conflict pushed oil prices above $100 per barrel. Energy was the top-performing sector by a wide margin, generating returns exceeding 38% in the SMID Cap universe. The Financials sector, by contrast, was the weakest, as commodity-driven inflation pushed interest rates higher and challenged expectations for Federal Reserve rate cuts. Higher interest rates and elevated gasoline prices pose headwinds for consumer activity.
The geopolitical backdrop shifted market focus away from the pro-cyclical themes that characterized the early part of the quarter, including sustained AI-related capital expenditures, improving PMIs, and strengthening earnings outlooks. The market declined in March, reflecting the concerns and consequences of an unresolved conflict in the Middle East.
Performance Summary
The SMID Cap Core Strategy returned -0.39% net of fees for the quarter, underperforming the Russell 2500 Index, which gained 2.04%.
While value outperformed growth and mid-cap stocks outperformed small caps, these favorable factor trends for the portfolio’s positioning were more than offset by continued underperformance of high-quality equities. Overall relative results were driven by security selection, particularly within Technology and Industrials, which together detracted 291 basis points.
Within Technology, the portfolio’s overweight to software and services and underweight to hardware and semiconductors proved challenging. Several software and services holdings declined meaningfully during the quarter, including AppFolio, CCC Intelligent Solutions, and SPS Commerce. In addition, the portfolio’s lack of exposure to three large technology equipment companies—SanDisk, Lumentum, and Ciena—detracted more than 140 basis points from relative performance.
Industrials underperformance was similarly influenced by software and services exposure, as well as weakness among non-defense government contractors.
While the portfolio maintained a market-weight allocation to the Energy sector, its quality-focused investment approach resulted in limited exposure to the more volatile E&P and oilfield service companies with higher sensitivity to oil prices, which detracted from relative returns.
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
Energy prices remain a key macro uncertainty and are likely to influence markets until geopolitical tensions ease and supply-and-demand dynamics normalize. The oil futures curve currently implies declining prices later this year, which could reflect either a faster resolution in the Middle East conflict or a more concerning signal that elevated prices may constrain demand and economic activity. At present, economic conditions appear resilient, credit spreads remain non-recessionary, and equity markets have repriced geopolitical risk in an orderly fashion.
During the quarter, portfolio activity focused on selectively adding high-quality businesses trading at attractive valuations in areas such as biotechnology, investment banking, aerospace, and automotive retailing. Funding sources included exits from slower-growth holdings with weakening quality characteristics, along with valuation-driven portfolio rebalancing.
Market behavior over the twelve months has reflected early-cycle dynamics that favored unprofitable companies and deep cyclicals. Looking ahead, a quicker geopolitical resolution combined with continued earnings improvement would likely broaden market leadership in favor of higher-quality companies. Conversely, if recent weakness signals rising economic risk, the portfolio’s lower volatility profile should provide relative downside protection.
Consensus expectations project 29% year-over-year EPS growth for the Russell 2500 Index in 2026, compared to 17% for the S&P 500. Despite this earnings advantage, SMID Cap equities continue to trade at a significant valuation discount to the historical premium held over large caps, suggesting a compelling valuation opportunity if fundamental growth catalysts evolve as currently forecasted.
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 04/23/2026
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 (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.
