Second Quarter 2015

DEAR CLIENTS & FRIENDS;

Both the U.S. and International equity markets were flat in the second quarter. Year to date, International
equity, in aggregate, is up 4%, slightly outpacing the 2% gain in the U.S. International markets are at least
keeping pace with the U.S. market so far this year after underperforming by more than 50% since the
beginning of 2010.
The U.S. fixed income markets were under pressure in the second quarter with the Barclays aggregate bond
index declining 2%. Since late April, treasury yields have been on the rise as global growth expectations are
improving and the anticipated Federal Funds rate hikes appear more likely to begin in the next few months.
As a result, the 10-year treasury yield climbed from 1.93% at the beginning of the quarter to 2.34% at the end.
After an extended period of lackluster results, Commodities showed some signs of life in the quarter. The Dow
Jones-UBS Commodity index posted a 5% gain this period led by an 18% gain in crude oil (although crude oil
is still 50% off its June 2014 highs) and a sharp increase in agricultural-based commodities in the last couple
weeks of the quarter.
As a reminder, our policy is to rebalance client portfolios on a semi-annual basis in order to realign with our
current market expectations. To that end, we plan to complete our mid-year rebalancing in the next couple
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.
We also wanted to remind you that we are available to assist you with your 401k portfolios (either your current
or former employers plan), taxable portfolios, IRAs, insurance contracts, and/or bank savings accounts. We
always appreciate the chance to review these portfolios for you to make sure you are invested appropriately
for your current situation and appetite for risk. We can also help you consolidate many of these accounts with
your current investments at Charles Schwab (our custodian) to upgrade your overall portfolio, simplify your
financial recordkeeping and more efficiently manage your tax situation.
At Wisco, we believe our approach of designing
well-diversified, low-cost investment portfolios
is the best way to produce favorable results
over time. We would like to thank you for
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

Second Quarter 2015

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

Balanced

Balanced Growth

Growth

Aggressive

Domestic Equity 30% 39% 46% 50% 65%

International Equity
5%
9%
16%
24%
29%
Domestic Fixed Income
49%
41%
30%
13%
0%
Alternative Investments
8%
5%
5%
10%
5%
Money Market 8% 6% 4% 2% 1%
Total
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

Second Quarter 2015 Market Review

DOMESTIC EQUITY
35%

33%

30%
25%
20%

16%

15%

Quarterly Returns

13%

10%
5%

5%

5%
0%

2%

0%
2Q15

1Q15

4Q14

3Q14

2Q14

1H15

2014

2013

2012

2011

0%

2%

1%

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

The domestic equity market was flat in the quarter

with all market capitalizations trading in a relatively
narrow range. The S&P 500 closed the quarter at
2063 off the all-time high of 2135 reached May
20th. S&P 500 1Q15 earnings grew a meager 3%
y/y, while GDP declined 0.2% in 1Q15. A strong
dollar and poor earnings from Energy companies
were a substantial headwind to earnings, while
a West coast port strike and bad weather in the
East contributed to the economic slowdown. Going
forward, we expect low-single digit earnings growth

in 2015. Low oil and gas prices have hurt earnings

in the Energy sector, yet consumers spending has
not shown much improvement given these lower
input costs. Furthermore, the Federal Reserve
could start increasing rates as early as September,
which could be a catalyst to further strengthening
of the dollar against other major currencies given
most other central banks have easier monetary
policies than the U.S. We feel a rate increase
could be a headwind to earnings growth in the
second half of 2015.
Wisco has reduced its domestic equity exposure
in all but our most aggressive model. On a valuation
basis, the S&P 500 is trading at a P/E of 17.2x
2015 consensus operating earnings which is higher
than average and, with modest earnings growth,
we think the market could tread water until
earnings are able to accelerate. That said, we
still like the prospects for the domestic stock
market longer term and expect a positive return
for the domestic stock market in 2015. However,
2015 returns are unlikely to match the previous
three years in terms of performance.

INTERNATIONAL EQUITY
20%

17%

15%

DOMESTIC FIXED INCOME

10%

14%

Quarterly Returns

10%

4%

5%

5%

4%

0%

-3%

-5%

-5%

-10%
-15%

8%
6%

6%

0%

Quarterly Returns

4%

3%

2%

2%

-3%

0%

-2%

-2%
2Q15

1Q15

4Q14

3Q14

2Q14

1H15

2014

2013

Wisco is increasing our International Equity

weighting in all but our most conservative model.
While Greece is getting all the headlines in
Europe, we feel that the European Central Banks
quantitative easing is modestly accelerating
growth. In addition, International Equities trade
at a significant discount to Domestic Equities.
Therefore, we feel International Equities may be
in a position to start outperforming Domestic
Equities after a period of significant
underperformance over the last 5 years.

2012

Like the Domestic market, International equity

was more or less flat in the quarter. In Europe, the
STOXX 50 declined 2% as weakness in Germany
(down 6%) more than offset positive returns in
smaller countries such as Hungary which was up
10% in the quarter. All eyes in Europe continue to
be focused on Greece and if they will discontinue
using the Euro as their primary currency. In Asia,
markets were mixed. Hong Kongs Hang Seng
posted a strong 7% gain but Australias market
declined 6%. Japans Nikkei 225 increased 3% in
the quarter. The FTSE Emerging Market Index was
up 1% in 2Q15. The Shanghai composite was up
14% in 2Q15, however, this strength was partially
offset by an 8% decline in Malaysias equity market.

-2%
2011

2Q15

1Q15

4Q14

3Q14

2Q14

1H15

2014

2013

2012

Source: MSCI ACWI ex USA and Wisco

-4%

2% 1%
0%

0%

-14%
2011

-20%

8%

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

The Barclays Capital U.S. Aggregate Bond Index

declined 2% in 2Q15, as the 10-year treasury yield
started the quarter at 1.93% and ended 2Q15 at
2.34%. This steepening of the yield curve is likely
the result of investors anticipating a rate increase
by the Federal Reserve in the second half of 2015.
Higher interest rates hurt performance across the
Fixed Income spectrum with the Barclays U.S.
Treasury Inflation Protected Securities Index (TIPS)
falling 1% in 2Q15 and BoA Merrill Lynch Corporate
Bond Index falling 3% in the quarter.
Wisco is increasing our Fixed Income exposure in
all but our most aggressive model. However, in our
more conservative models we are increasing our
exposure with a zero duration fund. This fund
should provide interest income above money market
rates, yet perform better than traditional bond funds
in an environment of rising rates and accelerating
economic growth. Looking forward, we think it is
more likely than not that the Fed starts increasing
rates this year and that the economy improves in
2H15. In this scenario, we think shorter maturity
bonds will perform better than longer maturity bonds
and a zero duration fund helps shorten our models
overall average maturity.

ALTERNATIVE INVESTMENTS
The Dow Jones-UBS Commodity Index recovered
from a tough 1Q15 returning 5% in the quarter. In
agriculture, Corn prices increased 10%1 and Soybean
prices increased 9%1, as farmers planted less acres
than analysts had expected. Despite this increase it
is worth noting that Corn is still over 50% below its
2012 peak, while Soybeans are down over 40% from
their 2012 peak. Gold prices declined 1%2 in the
quarter, while silver decreased 6%3 for the quarter.
Real Estate Investment Trusts (REIT) declined 10%4
in the quarter as higher interest rates negatively
impacted performance. Crude oil recovered some
of its significant loss in the 2nd half of 2014 as WTI
prices increased 18%5 in the quarter.
Wisco believes Alternative Investments are an
important part of a well-diversified portfolio.
With this in mind, we are adding an Agricultural

Commodity fund to all of our model portfolios, as

we feel depressed agricultural prices could continue
to show improvement in the second half of the year.
In addition, we will continue to hold a Gold fund in
certain portfolios.

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. While
an increase in the Fed Funds rate may increase this
yield later in the year, we think short-term interest
rates will remain low for an extended period of time.
Wisco is reducing money market exposure in all our
model portfolios because we feel higher returns can
be achieved in other asset classes.

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.

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