A Quarter Review
The fourth quarter was a relatively calm end to a rollercoaster year for markets that took stocks to all-time highs. In 2025, SMID quality underperformed by the largest annual margin since 2009 with low-quality, high-volatility stocks leading the robust market recovery from the April lows through October. However, November and December brought a broadening of market leadership. Mid-cap stocks regained ground lost to small caps earlier in the year, and high-quality stocks improved their relative performance.
Performance Summary
The SMID Cap Core Strategy returned 1.36% net of fees in the fourth quarter, trailing the Russell 2500 Index's 2.22% return. Underperformance was concentrated in October, driven by the Strategy’s high-quality bias, while November and December saw relative improvement as market conditions shifted.
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. Technology software stocks continued to be pressed by the risk AI poses to their business models, as well as a slower growth profile compared to the booming semiconductor industry. Health Care was the portfolio’s best-performing sector, but an underweight in biotechnology—up over 20% in the quarter—was a relative performance drag.
On the positive side, Consumer sectors contributed meaningfully, led by Coca-Cola Consolidated (31%), the portfolio’s top performer. An underweight in Consumer Discretionary and strong results in Financials, including Jack Henry & Associates and Axis Capital Holdings, also added value.
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
During the quarter, the team exited positions where confidence in quality and fundamentals had diminished, including LKQ, WEX, Americold Realty Trust, and Everest Group. Dutch Bros., a high-growth coffee and specialty beverage company, was a new addition.
The market has been digesting significant macro factors—AI innovation, tariff policies, monetary policy shifts, and geopolitical risks. Despite these uncertainties, earnings risk has receded as valuations have risen. SMID Cap companies are expected to report +15% year-over-year earnings growth for the fourth quarter, the fastest pace since early 2022, with consensus projecting 30% growth in 2026. While these forecasts often prove optimistic, SMID Cap earnings growth is very likely to outpace Large Cap’s in the quarters ahead. With a wide valuation discount still present, a SMID Cap portfolio should be well positioned for relative performance as this fundamental rotation occurs.
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 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). 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.
