Fourth Quarter 2014

DEAR CLIENTS & FRIENDS;

The bull market in U.S. equities continued in 2014 rising 5% in the fourth quarter and 13% for the year. This
marked the sixth consecutive year of positive returns for U.S. stocks, including double digit gains in five of those
years. Conversely, international equities continue to lag as many overseas regions are facing slowing economic
conditions. International stocks, in aggregate, were down 3% in both the fourth quarter and full year.
The U.S. fixed income markets were strong this year with the Barclays aggregate bond index rising 2% in the
fourth quarter and 6% for the year. Bonds continue to benefit from falling U.S. treasury rates as the 10-year
declined from 3.03% at the beginning of the year to 2.17% at year end. As a result, our lower risk portfolios
with higher allocations to fixed income performed well in 2014 exceeding money market and bank CD rates.
Commodities were a drag on performance in 2014. All three of our major commodity categories (energy,
agriculture and metals) were down this year, with the fourth quarter collapse in crude oil prices the most
notable (down 41%). Corn and Soybean prices both experienced double digit gains in the fourth quarter
although still ending lower for the year. Metals were not in the spotlight as much this year with Gold ending
the year down modestly.
As a reminder, our policy is to rebalance client portfolios on a semi-annual basis. This allows us to realign
your portfolio with our current market expectations. To that end, we recently completed our year-end portfolio
adjustments and will be rebalancing portfolios over the next few weeks. As always, feel free to contact us to
discuss the rebalancing of your portfolio, your targeted risk level, or any other life changes that may be
relevant to how your portfolio is invested.
At this time of year, we also like to remind you that its a good time to meet with us to discuss your 2014
investment performance as well as to review your objectives for the new year. We believe these meetings are
beneficial to both parties and want you to know that we are available if you think a meeting would be helpful.
Also, dont forget that the last day to make your 2014 IRA contribution is right around the corner (tax day).
At Wisco, we believe our approach of creating welldiversified, low-cost investment portfolios is the
best way to produce favorable results over time.
We would like to thank you for providing us
with the opportunity to work with you as
your investment adviser. We appreciate
your business!
Sincerely,

The Wisco Team

Investment Advisors:

Stephen Share sshare@wiscoinvest.com Greg Schroeder gschroeder@wiscoinvest.com

Fourth Quarter 2014

Wisco Investment Management

Wisco model portfolios are constructed using five different asset classes; Domestic Equity, International
Equity, Domestic Fixed Income, Alternative Investments and Money Market. Our current model portfolio
asset class allocations are as follows:

WISCO MODEL PORTFOLIOS

Conservative

Domestic Equity
International Equity
Domestic Fixed Income
Alternative Investments
Money Market
Total

Balanced

Balanced Growth

Growth

Aggressive

33%
47%
53%
60%
65%
5%
5%
13%
22%
23%
42%
31%
17%
0%
0%
10%
10%
12%
14%
10%
10%
7%
5%
4%
2%
100% 100% 100% 100% 100%

Target Volatility* 6% 8% 10% 12% 14%

*Target Volatility is our estimate for the annual standard deviation of portfolio returns.
Source: Wisco Investment Management LLC

Fourth Quarter 2014 Market Review

DOMESTIC EQUITY
35%

33%

30%
25%
20%

Quarterly Returns

17%

16%

15%

13%

10%
5%

2%

1%

5%

5%
0%

4Q14

3Q14

2Q14

1Q14

4Q13

2014

2013

2012

2011

2010

0%

10%

Source: Dow Jones U.S. Broad Stock Market Index and Wisco.

The domestic equity market finished the year

returning 5% in 4Q14. For 2014, the market returned
13% with stronger performance in large caps (up
13.3%) than in small caps (up 7.6%). The S&P 500,
closed the year at 2059 just off the all-time high of
2091. S&P 500 3Q14 earnings grew 5% y/y, driven
by the strongest GDP reading (up 5%) in over ten
years. Furthermore, the unemployment rate declined
to 5.8% its lowest level since 2008. We feel these
strong readings suggest that the United States

economy is improving and we think the economy

could continue to improve in 1H15. A catalyst for
further growth could be lower gas prices, which we
feel will accelerate consumer spending in the first
part of 2015. In addition, a low inflation rate may
allow the Federal Reserve to be less aggressive in
increasing rates early in 2015. That said, we expect
to see the Fed increase rates sometime in 2015,
which could be a headwind for financial markets
later this year.
In 2015, we continue to have a positive outlook
for the domestic stock market. On a valuation
basis, the S&P 500 is trading at a P/E of 16.2x
2015 consensus operating earnings which is a little
higher than average. That said, we think this higher
valuation is justified based on our expectation for
accelerating economic activity in 1H15. Therefore,
we continue to have a significant portion of all our
model portfolios invested in the U.S. stock market.
We expect a positive return in 2015 with the first
half of the year stronger than the second half of
the year.

INTERNATIONAL EQUITY
20%
15%
10%

17%
11%

DOMESTIC FIXED INCOME

10%

14%

Quarterly Returns

5%

5%

-5%

-10%

Quarterly Returns

3%

2% 2%

2%

-1%
4Q14

3Q14

2Q14

1Q14

4Q13

2014

2013

2012

While international equity is an important part

of a diversified portfolio, for the next six months,
we feel domestic markets will outperform
international markets. Therefore, we are reducing
the international exposure in our models and
focusing more on developed markets, as we feel
monetary tightening and lower oil prices will benefit
established markets more than emerging markets.

2011

International equity markets declined 3% in the

quarter. In Europe, the STOXX 50 declined 6% this
quarter as Eurozone GDP was weak at 0.2% in
3Q14. All major European markets declined during
the quarter and while Germany was down just
marginally, Norways Oslo Exchange (down 22%) and
Greeces Athex Composite (down 25%) were among
the weakest European markets. In Asia, Hong
Kongs Hang Seng was up 3%, while Japans Nikkei
225 declined 1% and South Koreas KOSPI declined
9% in the quarter. The FTSE Emerging Market
Index was also down 3% in 4Q14. The Shanghai
composite was up 36% in 4Q14 and finished the
year up 49%. However, this strength was offset
by weakness in Russias RTSI index (down 30%)
and Brazils IBOVESPA which declined 8%. For the
year developed markets declined 6% and emerging
markets were flat.

-2%
2010

4Q14

3Q14

2Q14

1Q14

4Q13

2014

2013

Source: MSCI ACWI ex USA and Wisco

-4%

2%
0%

0%
-2%

2012

2011

2010

-20%

-3%

-14%

-15%

6%

4%

-3%

-5%

8%
7%

6%

5%
1%

0%

8%

Source: Barclays Capital U.S. Aggregate Bond Index and Wisco.

The Barclays Capital U.S. Aggregate Bond Index

returned 2% in the 4Q14 and finished the year up
a solid 6%. The Federal Reserve completed its bond
buying program in October and now investors are
focused on when the Fed will start increasing rates.
The 10-year treasury yield started the quarter at
2.51% and ended 4Q14 at 2.17%. While the U.S.
economy was strong, this strength was more than
offset by weak international growth, a strong dollar
and falling oil prices which pushed rates lower.
Barclays U.S. Treasury Inflation Protected Securities
Index (TIPS) was flat in 4Q14, and was up 4% for
the year. Annual CPI remained tame at 1.3% in
November. Investment grade corporate bonds (up
2% in 2Q14 and 8% in 2014) outperformed high
yield corporate bonds (0%, 2%).
In 2015, Wisco expects low yet positive Fixed
Income returns. Interest rates are at historically
low levels, but this trend could continue, as the
global economy looks soft and low oil prices could
keep a lid on inflation. We are increasing exposure
to U.S. investment grade corporate bonds in our
more conservative models given the strength of
the domestic economy and the fact that corporate
bonds yield more than government bonds.

ALTERNATIVE INVESTMENTS
The Dow Jones-UBS Commodity Index declined 13%
in the quarter and 19% for the year. In agriculture,
Corn prices recovered increasing 24%1 and finishing
the year down 6%1. Soybean prices also increased
in the quarter up 12%1 and finished the year
down 22%1. Gold prices declined 2%2 for both the
quarter and the year, while silver declined 8%3 for
the quarter and 20%3 for the year. Real Estate
Investment Trusts (REIT) had a strong quarter up
15%4 and finished the year up 32%4. The most
surprising news in Alternative Investments was the
free fall in crude oil prices which declined 41%5 in
the quarter and 46%5 in 2014. Strong domestic
crude oil production combined with modest global
demand growth resulted in an imbalance in crude
oils supply and demand driving down price. Longer
term, we think global oil production will self-correct
and prices will move higher.

We feel the increased volatility in Alternative

Assets has created some investment opportunities
in this asset class. With this in mind, we will be
increasing our exposure to an Energy Master
Limited Partnership (down 7%6 in the quarter, up
4%6 in 2014) in all our models. In addition, Wisco
will expand the use of a gold ETF to all but our
most aggressive model. Finally, we will add an
agricultural ETF to our Aggressive model.

MONEY MARKET
Wisco keeps a modest money market allocation in
all of our model portfolios. The current yield of the
Schwab Money Market is 0.01%. Low Federal Funds
rates have held down short-term yields. We think
short-term interest rates will remain low for
an extended period of time.

1 Return calculation based on the near future contract as quoted in the Wall Street Journal.
2 Return calculation uses ETFS Physical Swiss Gold Shares (SGOL) as a proxy for gold.
3 Return calculation uses iShares Silver Trust ETF (SLV) as a proxy for silver.
4 Return calculation uses Schwab U.S. REIT ETF (SCHH) as a proxy for Real Estate Investment Trusts.
5 Return calculation uses Cushing, OK WTI spot price FOB as a proxy for oil.
6 Return calculation uses Alerian MLP (AMLP) as a proxy for Energy Master Limited Partnerships.

Wisco Investment Management LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend
to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Investments involve
risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser, tax professional, or attorney before
implementing any strategy or recommendation discussed herein.

402 Gammon Place, Suite 380 Madison, WI 53719 Office 608.442.5507 Fax 608.237.2206