A Quarter Review
Global trade policy remained in flux during the second quarter, and new tariff announcements from the White House contributed to heightened market volatility. The quarter opened with a broad selloff following the April 2nd “Liberation Day” tariff announcements, leading to a sharp correction in SMID Cap stocks. But a week later, a 90-day tariff implementation pause signaled a willingness from the U.S. to negotiate, which sparked a rally that recouped losses from the prior quarter.
Amid continued economic growth and rising investor sentiment, SMID Cap stocks were led by lower quality, cyclical stocks, in economically sensitive sectors such as Technology, Industrials, and Consumer Discretionary. In contrast, low-volatility and value-oriented stocks underperformed.
Performance Summary
The SMID Cap Core Strategy returned 4.66% net of fees in the second quarter, trailing the Russell 2500 Index’s 8.59% return. Sector allocation contributed positively to relative performance but was more than offset by negative stock selection.
The Strategy’s balanced investment framework—focused on quality, valuation, and momentum—faced headwinds in a pro-cyclical market environment that favored lower-quality names. This was particularly evident in the Industrials sector. The Health Care sector also detracted from performance, as political uncertainty and weak growth trends weighed on several holdings. In Energy, falling oil prices (-9% for the quarter) pressured the sector broadly, despite a brief spike in June following U.S. and Israeli strikes on Iranian targets. The portfolio’s emphasis on midstream pipeline companies helped mitigate exposure to oil price volatility.
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
Relative valuations continue to favor SMID Cap stocks over Large Caps, but a lingering SMID Cap earnings recession and a more measured pace of Federal Reserve rate cut expectations have delayed mean reversion.
After four consecutive quarters of year-over-year earnings declines, earnings growth is expected to resume in the second quarter. Trade policy remains a wildcard. While SMID Cap companies are generally more domestically focused, their cost structures may still be vulnerable to tariffs. Whether these costs are passed through to customers or absorbed, margin pressures could rise. However, high-quality companies are typically better equipped to manage these challenges.
Although earnings estimate revisions remain negative, a shift toward upward revisions could serve as a catalyst for broader market participation. Full-year earnings estimates suggest the earnings recession in SMID Cap is now behind us. Rate cuts could further support smaller, more economically sensitive companies, potentially marking the start of a new cycle.
Portfolio activity during the quarter was driven by bottom-up fundamentals. The team exited positions where the quality profile deteriorated and reallocated to a select group of primarily smaller-cap companies with stronger outlooks
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 07/22/2025
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 June 30, 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. E ective 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.
