Despite tepid earnings growth for the average company in 2019, broad equity markets provided very attractive returns. To the casual observer, public company earning’s growth, GDP growth and stock prices appear to have decoupled. In 2018, the stock market declined despite significant earnings growth for the underlying major indices. In 2019, the stock market soared despite minimal growth in these underlying earnings.

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Longer term, the recent decade showed stock prices, as measured by the S&P 500 (“S&P”), roughly matched the earnings growth of these companies as its 11.2% annual price increase only slightly exceeded the 10.2% annual earnings increase. As crazy as it seems, all the angst over politics, international trade, Middle East tensions, Federal Reserve policy, etc. translated into very favorable equity returns as the century suffered through its teens.

For 2019, the 31.5% return of the S&P was driven by the Tech sector as market participants rewarded the disruptive growth potential of that sector. Bonds also fared relatively well as the yields on US Treasury Notes declined after the Federal Reserve reversed its tightening policy and again lowered the key short-term interest rates at three successive meetings this summer. Just as importantly, it also began expanding its balance sheet again.

In fact, the latter move seemed to cause the strong market recovery in the fourth quarter.

As you know, our core investment strategy is centered around finding growth companies while, when appropriate, allocating money to fixed income investments to modify volatility. Individual companies develop and implement their business strategy based on opportunities, risk perception, competitive landscape, etc. So, while we focus on individual companies, no one operates in a vacuum. We prefer companies that appear to be driving, enabling or benefiting from secular growth trends. As the adage goes, it’s easier to swim with the stream than to fight it. If we are successful in identifying these economic growth drivers, then we try to focus on the company’s individual business model, preferring companies where we can identify recurring revenue, barriers for competitors and attractive profit margins.

Our success, and your investment return, depends on that analysis coupled with the overall investment environment. As we mentioned above, the Fed’s policy of accommodation and expanding its balance sheet typically contributes to a favorable investment environment. Coupled with signs of international trade tensions abating, we are hopeful that our investment strategy will be rewarded again this year.

Best wishes from all of us at Wisconsin Capital Management for a healthy and prosperous year in 2020.

Thomas G. Plumb, President

Important Information

SPXT-S&P 500 Total Return Index. S&P 500 is an unmanaged index which is widely regarded as the standard for measuring large-cap U.S. stock market performance. Calculated intraday by S&P based on the price changes and reinvested dividends of SPX with a starting date of Jan 4, 1988.

It is not possible to invest directly in an index.

The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained on www.plumbfunds.com or by calling 1-866-987-7888. Read it carefully before investing. The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained on www.plumbfunds.com or by calling 1-866-987-7888. Read it carefully before investing. 

Past performance does not guarantee future results. 

Index performance is not illustrative of Plumb Funds’ performance. Please visit Plumb Equity Fund Performance or Plumb Balanced Fund Performance for the standardized returns of the S&P 500, MSCI EAFE and the Funds.

Mutual fund investing involves risk. Principal loss is possible. The fund may invest in small and mid sized companies which involve additional risks such as limited liquidity and greater volatility. The funds invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. Because the funds may invest in ETFs, they are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a discount to its net asset value (“NAV”), an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a fund’s ability to sell its shares. The fund may also use options and future contracts, which have the risks of unlimited losses of the underlying holdings due to unanticipated market movements and failure to correctly predict the direction of securities prices, interest rates and currency exchange rates. The investment in options is not suitable for all investors. The Plumb Balanced Fund will invest in debt securities, which typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities.

Diversification does not assure a profit nor protect against loss in a declining market.

Plumb Funds are distributed by Quasar Distributors, LLC, distributor.