Investment Advisors: Stephen Share sshare@wi scoi nvest.com Greg Schroeder gschroeder@wi scoi nvest.

com
Third Quarter 2014
DEAR CLIENTS & FRIENDS;
The fnancial markets were weaker across the board in the third quarter. After nine consecutive quarters of
positive returns, the U.S. equity market took a breather this period, posting a fat return. Although we remain
cautiously optimistic on the U.S. stock market, investors appear to be discounting a more hawkish Federal
Reserve policy, a rapidly appreciating U.S. dollar and rising global uncertainties around the world. International
equities, in aggregate, were particularly soft this quarter, declining 5%, as economic growth in many developed
and emerging economies underperformed expectations in recent months.
Fixed income returns were relatively fat this quarter. The 10-year treasury yield, at 2.51% at the end of the third
quarter, remained unchanged compared to three months ago, but has fallen from 3.03% since the beginning
of the year. Fixed income allocations have performed pretty well this year, despite the general consensus that
bonds are at risk. The most notable declines this quarter were the drastic drops in the commodity markets,
driven to an extent by the strong appreciation in the U.S. dollar. This was apparent in the sharp decline in
agricultural commodities (i.e., corn plummeted 24%), crude oil was down 14%, and precious metals like silver
and gold declined 19% and 9%, respectively, this period.
Overall, we continue to believe that well-diversifed, low-cost investment strategies will continue to produce
favorable results over time.
Back at the offce, we completed the integration of the Morningstar Offce suite into our business this summer.
We believe this will enhance our ability to provide you with performance reporting, fnancial planning and other
services you may desire. Going forward, we plan to send you a performance report in our quarterly mailings.
This will help you to better understand how your portfolio is doing versus equity and fxed income benchmarks.
Please feel free to contact us if you have questions regarding your report.
Our fourth quarter investment seminar will be held on Wednesday, November 19th at 6:00 p.m. at Blackhawk
Country Club. Please let us know if you would like to attend or if you have a friend or family member that might
beneft from joining us.
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
Wisco Investment Management
Wisco model portfolios are constructed using fve 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:
Third Quarter 2014
The domestic equity market had an up and down
quarter before fnishing more or less fat. The
S&P 500, once again, reached a new all-time high
this quarter when it closed at 2011 on September
18th. S&P 500 2Q14 operating earnings grew a
respectable 9% y/y, as GDP accelerated to 4.6% its
highest level since 4Q11. Undoubtedly, this strong
reading was at least partially a catch-up from 1Q14s
GDP decline, but we also feel this is an indication
that the domestic economy is improving. We expect
to see solid GDP growth in the 2H. That said, we
could be entering a period where strong economic
news doesnt translate into a strong stock market.
The Federal Reserve is on pace to end its bond
buying program in October and should the economy
remain strong we could see the Fed increase
rates in 2015 which would be a headwind for
the stock market.
Year-to-date the domestic stock market is up 7%.
On a valuation basis, the S&P 500 is trading at a
P/E of 16.8x 2014 consensus operating earnings
which is a little higher than average. This higher
valuation combined with a more hawkish Fed could
result in the market treading water in the near term.
However, longer-term strong GDP should result
in strong earnings growth in 2015, and we think
this could translate into higher stock prices and a
continuation of the bull market in domestic equities.
Third Quarter 2014 Market Review
WISCO MODEL PORTFOLIOS
Conservative Balanced Balanced Growth Growth Aggressive
Domestic Equity 33% 41% 49% 57% 62%
International Equity 5% 11% 18% 23% 28%
Domestic Fixed Income 42% 31% 19% 6% 0%
Alternative Investments 10% 10% 10% 10% 8%
Money Market 10% 7% 5% 4% 2%
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
35%
30%
25%
20%
15%
10%
5%
0%
3
Q
1
4
2
Q
1
4
1
Q
1
4
4
Q
1
3
3
Q
1
3
2
0
1
3
2
0
1
2
2
0
1
1
2
0
1
0
2
0
0
9
Quarterly Returns
DOMESTIC EQUITY
Source: Dow Jones U.S. Broad Stock Market Index and Wisco.
28%
33%
17%
1%
16%
6%
10%
2%
5%
0%
The international equity markets declined 5% in the
quarter, with developed markets seeing a greater
decline than emerging markets. In Europe, the
STOXX 50 declined 8% this quarter as Eurozone
GDP was weak at 0.1% in 2Q14. A very weak Euro
also hindered U.S. dollar denominated investments.
All major European markets declined during the
quarter with Austrias Wiener Borse ATX (down
18%) and Greeces Athex Composite (down 19%)
among the weakest European markets. In Asia,
Hong Kongs Hang Seng was fat, while both South
Koreas KOSPI (down 3%) and Japans Nikkei
225 (down 1%) declined in the quarter. The FTSE
Emerging Market Index declined 2% in 3Q14, as
Russias RTSI index lead the decline, falling 18%,
and Brazils IBOVESPA fell 8%. On the bright side,
the Shanghai composite was up 17% in 3Q14 and
is now up 10% year-to-date.
While we did reduce our International Equity
exposure in July, Wisco continues to feel the asset
class is an important component of a diversifed
portfolio. Going forward, investors will likely be
focused on whether Europe falls into a recession
or if the ECBs simulative measures can accelerate
growth. We are cautiously optimistic that Europes
growth can accelerate and that its markets
will improve.
The Barclays Capital U.S. Aggregate Bond Index
was fat in the quarter, as rates were largely range
bound. The Federal Reserve announced it will have
completed its bond buying program after purchasing
$15 billion of mortgage and Treasury bonds in
October. We could see additional tightening in 2015,
if infation accelerates. The 10-year treasury yield
started the quarter at 2.52% and ended the quarter
at 2.51% with high and low yields of 2.65% and
2.32%, respectively. Barclays U.S. Treasury Infation
Protected Securities Index (TIPS) declined 2% in
the quarter, and is up 4% year-to-date. Annual CPI
remained tame at 1.7% in August. Investment grade
corporate bonds were fat in the quarter, while high
yield corporate bonds declined 2%.
Wisco continues to expect low yet positive Fixed
Income returns. Interest rates are at historically
low levels, but this trend could continue for some
time. Rates in much of Europe remain below U.S.
levels and until we see a strengthening of European
economies we feel foreign buyers will continue to
seek out U.S. Treasuries. Therefore, we continue to
have Fixed Income in our more conservative models
to take advantage of the asset class low volatility
and expected positive return.
DOMESTIC FIXED INCOME
Quarterly Returns
10%
8%
6%
4%
2%
0%
-2%
-4% 3
Q
1
4
2
Q
1
4
1
Q
1
4
4
Q
1
3
3
Q
1
3
2
0
1
3
2
0
1
2
2
0
1
1
2
0
1
0
2
0
0
9
6%
7%
8%
3%
1%
-2%
0%
2% 2%
-1%
Source: Barclays Capital U.S. Aggregate Bond Index and Wisco.
INTERNATIONAL EQUITY
40%
30%
20%
10%
0%
-10%
-20% 3
Q
1
4
2
Q
1
4
1
Q
1
4
4
Q
1
3
3
Q
1
3
2
0
1
3
2
0
1
2
2
0
1
1
2
0
1
0
2
0
0
9
Quarterly Returns
37%
11%
17%
14%
10%
0%
5% 5%
-14%
-5%
Source: MSCI ACWI ex USA and Wisco
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 specifc securities product, service, or investment strategy. Investments involve
risk and unless otherwise stated, are not guaranteed. Be sure to frst consult with a qualifed fnancial adviser, tax professional, or attorney before
implementing any strategy or recommendation discussed herein.
ALTERNATIVE INVESTMENTS
The Dow Jones-UBS Commodity Index declined 13%
in the quarter. In agriculture, Corn prices fell 24%
1
and Soybean prices declined 35%
1
, as expectations
of a record North American harvest combined with
soft global demand and a strong U.S. dollar to
create a perfect storm in the agricultural market.
Precious metals were also the victim of a strong
U.S. dollar as gold declined 9%
2
and silver declined
19%
3
. Real Estate Investment Trusts (REIT) also
declined in the quarter, (down 3%
4
) albeit not as
signifcantly as some other Alternative Assets. In the
Energy market, crude oil declined 14%
5
while Energy
Master Limited Partnerships bucked the trend
returning over 2%
6
.
While not completely unscathed, Wiscos models
were fortunate to avoid some of the largest
declines in the Alternative Investment asset class.
All our models held an Energy Master Limited
Partnership ETF, which returned 2.5%. In addition,
some models held gold while others held a broad-
based commodity ETF that declined 9.1%. We
are currently analyzing a number of Alternative
Investment opportunities including some of the
hardest hit commodities with the idea that this price
weakness may offer us a buying opportunity as we
start focusing on our investment strategy for 2015.
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.
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