First Quarter 2016

DEAR CLIENTS & FRIENDS;

Despite a turbulent start to the year, both the U.S. and International stock markets ended the first quarter
relatively unchanged. The U.S. stock market rose 1% in the quarter, recovering from an 11% decline through
mid-February, while International equites finished flat.
The U.S. fixed income market had a nice quarter with the Barclays aggregate bond index rising 3%. Bonds
benefited from falling U.S. treasury rates as the interest rate on the 10-year treasury note declined from 2.3%
at the beginning of the quarter to 1.8% at the end.
Commodities were mixed in the quarter with the Dow Jones-UBS Commodity index flat in the first quarter.
Precious metals were strong in the quarter with Gold prices increasing 16% and Silver prices up 11%, this
strength was offset by some weakness in agricultural commodities.
The first quarter was a busy one for us at Wisco. We hosted a number of year-end client meetings over the
last few months to discuss 2015 performance and to review objectives for 2016. Please feel free to contact us
anytime if you would like to discuss your investment strategy, targeted risk level, performance report, or if you
would like us to work on a personalized financial plan for you. Also, dont forget that the last day to make your
2015 IRA contribution is right around the corner (tax day).
As a reminder, we are always appreciative of opportunities to talk to your organizations and companies about
investment-related topics. Also as spring approaches, we are excited to again be sponsoring the Logans Heart
& Smiles Golf Outing, the Madison Parks Foundation Legacy Golf Outing and the Festa Italia.
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 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

First Quarter 2016

Wisco Investment Management

Wisco model portfolios are constructed using five different asset classes; Domestic Equity, International Equity,
Domestic Fixed Income, Alternative Investments and Cash. 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
Target Volatility*

Balanced

Balanced Growth

Growth

Aggressive

29%
7%
50%
5%
8%
100%

38%
12%
39%
5%
6%
100%

43%
19%
29%
5%
4%
100%

50%
24%
18%
5%
2%
100%

65%
29%
0%
5%
1%
100%

6%

8%

10%

12%

14%

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

First Quarter 2016 Market Review

DOMESTIC EQUITY
35%

33%

30%
25%
20%

16%

15%

13%

Quarterly Returns

10%
5%
0%

1%

0%

2%

6%
1%

0%

-5%

-7%
1Q16

4Q15

3Q15

2Q15

1Q15

2015

2014

2013

2012

2011

-10%

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

The domestic equity market recovered from a

significant decline in January and the first part of
February to post a 1% return in the quarter. The
S&P 500 started the year at 2044 only to decline
steadily throughout January. On February 11th the
S&P 500 bottomed at 1829, the S&P 500 then
rallied to close the quarter at 2060, 4% below its
all-time high of 2135 reached May 20th. Lackluster
economic results were partly responsible for
the markets decline. S&P 500 4Q15 operating

earnings declined 2% compared to 4Q14, and

4Q15 GDP growth was up just 1.4%. Poor results
from energy and commodity companies were
a substantial headwind to corporate earnings.
However, an increase in commodity prices along
with dovish language from the Federal Reserve
reduced recession fears and sparked a rally in the
second half of the quarter. Going forward, we feel
low single digit earnings growth is possible as the
headwinds from low oil prices and a strong dollar
will likely dissipate, while a stronger economy
and better consumer spending could improve the
prospect for earnings growth.
While not for the faint of heart, we feel there are
reasons to be optimistic about the domestic equity
market. The S&P 500 is trading at a P/E less than
17x 2016 consensus operating earnings which
seems like a reasonable valuation especially with
the 10-year Treasury note yielding just 1.8%.
Therefore, we remain constructive on the domestic
stock market and feel modest positive returns are
possible in 2016. With that in mind, Wisco continues
to have significant domestic equity exposures in all
our client portfolios.

INTERNATIONAL EQUITY
20%

17%

15%

10%

14%

Quarterly Returns

10%

4%

5%
0%

0%

8%

8%
6%

6%
4%

Quarterly Returns

3%

2%

0%

0%

-6%

-10%

-12%

-14%

-2%

3%

1%

-2%
1Q16

4Q15

3Q15

2Q15

1Q15

2015

2014

2013

2012

2011

1Q16

Source: MSCI ACWI ex USA and Wisco

-4%

1%

-1%

-2%
4Q15

3Q15

2Q15

1Q15

2015

2014

2013

2012

2011

-20%

3%

0%

-3%

-5%

-15%

DOMESTIC FIXED INCOME

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

International equity followed a pattern similar to

the domestic market falling in the first half of the
quarter before recovering in the second half to
finish flat. In Europe, the FSTE 100 decreased 2% in
1Q16. The Euro area GDP continues to post modest
results with GDP up 0.3% in 4Q15. Hungary (+17%)
and Poland (+12%) were among the strongest
performers in 1Q16, while Italy (-11%) lagged. In
Asia, the Nikkei 225 declined 5% and the Shanghai
composite (-15%) also had negative results in 1Q16.
The FTSE Emerging Market Index recovered in 1Q16
up 6% after declining 16% in 2015, as Brazil (+29%)
and Russia (+16%) both had bounce back quarters.

Fixed Income had solid results in 1Q16 with Barclays

Capital U.S. Aggregate Bond Index increasing 3%.
These strong results were board based with TIPS
(+5%), Investment Grade Bonds (+5%) and High
Yield Bonds (+3%) all performing well. The 10-year
treasury yield started the quarter at 2.27% and
ended 1Q16 at 1.79%, as the global growth scare
drove down interest rates. Market and economic
uncertainty also caused the Federal Reserve to
reduce its forecast of year end short term rates
with the current expectation of less than three
0.25% interest rate increases in 2016. This also
was a catalyst for lower rates in the quarter.

International markets continue to trade at a

significant discount to the domestic stock market.
Over time this low valuation could result in
stronger performance in international markets.
On a fundamental basis, the domestic economy
continues to perform better than most overseas
economies. Nevertheless, the ECBs quantitative
easing program, a strong U.S. dollar and improving
commodity prices could accelerate growth
internationally. Therefore, we hold international
equities in all our portfolios and continue to believe
it is an important asset class to own in a welldiversified portfolio.

With inflation below the Feds target combined

with the markets poor reaction to the December
rate increase, we think it is possible the Federal
Reserve could be on the sidelines even longer
than its forecast suggests. Under this backdrop,
Wisco feels Fixed Income could post returns in
the mid-single digit range for 2016. Therefore,
we continue to hold Fixed Income securities in
all but our most aggressive portfolios and prefer
government bonds, inflation protected bonds and
investment grade corporate bonds. We are avoiding
high yield bonds because of possible defaults from
energy companies.

ALTERNATIVE INVESTMENTS
The Dow Jones-UBS Commodity Index was flat in
the quarter. In agriculture, Corn prices decreased
2%1, but Soybean prices increased 5%1, as prices
remain well below their 2011 highs. Going forward,
we think consistently low prices could result in
less acres planted this Spring in North America
and Russia. Gold prices were strong in the quarter
increasing 16%2, while silver prices increased 11%3.
Market uncertainty in the quarter helped drive
precious metal prices higher. Real Estate Investment
Trusts (REIT) increased 5%4 in the quarter as
investors looked to purchase income producing
assets. Finally, Crude Oil prices increased 2%5 in
1Q16, as the oil market declined in the first half
of the quarter before recovering in the second
half of 1Q16.

Wisco continues to include Alternative Investments

in our portfolios. For lower risk portfolios, we are
holding gold. Gold is generally inversely correlated
with the equity market which helps reduce the risk
in these portfolios. For more aggressive portfolios,
we hold agricultural commodities, which we feel
could benefit from less supply this planting season.

MONEY MARKET
Wisco keeps a modest money market allocation in
all of our portfolios. The current yield of the Schwab
Money Market is 0.01%. Low Federal Funds rates
have held down short-term yields. If the Federal
Reserve increases rates in 2016, the yield for money
markets may modestly increase. Nevertheless, 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.

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