Investment Systems Can Do Almost Anything. But Not Everything.
“The essence of strategy is choosing what not to do.” – Michael Porter
One of the biggest misconceptions in investing is that the best system is the one that does everything. In reality, the strongest systems are those that do a few things well – and intentionally avoid the rest.
At Spartan Planning Group, we believe the art of system design lies not in complexity, but in clarity and robustness. That means focusing on what works across a variety of market environments, not just what works in backtests or ideal conditions. It also means making tough decisions about what to prioritize—and being honest about the trade-offs. Responsiveness might improve timing, but it might increase taxes. Broader exposure might boost diversification, but it might dilute conviction. There’s no free lunch.
Like all investment strategies, trend following comes with tradeoffs. But unlike many approaches that try to mask them, it also brings those tradeoffs to the surface, where they can be understood, managed, and ultimately turned into strengths.
In this month’s Note, we explore how trend following, like life, requires choices. We also share how the current environment continues to highlight the importance of staying focused on what works, rather than trying to be everything at every time to everyone
But first, here’s a summary of our take on what transpired in the markets in May.
Disclaimer: This note is for general update purposes related to the general strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your exposure to any given asset class will depend on your goals, risk profile, and how tactical or static your risk profile calls for. Adjustments can vary across strategies depending on each strategy’s objectives. What’s illustrated above most clearly reflects allocation adjustments for the Growth Strategy. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth, please contact your advisor.
Asset-Level Overview
Equities & Real Estate
After the historically sharp decline in early April, May picked up where the prior month left off, with U.S. stocks quickly making up ground after a brief abatement in tariff uncertainty. Since the torrid start to May, things have settled a bit, but enough recovery has occurred to flip negative trends back to positive. As a result, our portfolios will increase their exposure to U.S. equities. Furthermore, the continued weakness of other equity segments, such as real estate, will result in their allocations being moved to U.S. equities, which will push that asset class into overweight status for strategies focused primarily on capital appreciation.
International stocks also performed positively alongside their U.S. counterparts in May. Trends in foreign developed equities remain stronger than those in emerging markets, resulting in a continued tilt toward developed markets. The aggregate allocation to international equities will be at its baseline.
As mentioned above, real estate securities remain weak. In fact, trends over all timeframes we monitor remain negative. The consequence is that this allocation will be handed off to stronger U.S. equities in strategies focused on capital appreciation and to fixed income for strategies focused on preservation.
Fixed Income & Alternatives
The fixed income picture remains cloudy, with prices generally falling in May. Trends weakened in the middle of the yield curve, after showing strength in April, and our portfolios will reallocate toward shorter-duration instruments. International and inflation-indexed bonds remain a bright spot from a trend perspective and will continue to be a baseline allocation in some strategies and an overweight position in others.
Within the alternatives allocation, fixed income remains a leading exposure, now dominated by shorter-duration instruments due to trends in the middle of the curve weakening in May. Longer-duration bonds continue to be primarily held in short positions. Commodities — continuing to be led by cocoa and gold — maintain a net long posture. The portfolio remains net long the U.S. Dollar, though that exposure has lightened modestly in response to recent signs of near-term weakness. Equities are now clearly net long, as recent strength in global stocks prompted exits from short positions while long exposures were maintained.
3 Potential Catalysts for Trend Changes
Student Loans Re-Engage: Borrowers have been required to repay their student loans since last fall, but this month, the President Donald Trump administration began putting millions of defaulted student loan borrowers into collections and threatened to confiscate their wages, tax refunds, and federal benefits. Economists at Morgan Stanley estimated that payments this year could rise by a collective $1-3 billion per month. They estimate that it could trim the 2025 gross domestic product by about 0.1% from consumer spending. This month, the Federal Reserve Bank of New York also reported that the student loan delinquency rate jumped from 0.7% in Q4 2024 to 8% in Q1 2025, which is back to around where it was before the pandemic.
Slowing Home Sales: Mortgage rates have climbed to 6.86%, the highest level in three months, after holding steady between 6% and 7% for most of the past year. Pending home sales have fallen in all four U.S. regions, with the West seeing the largest drop, followed by the South. The pending home sales index, a leading indicator of sales based on contract signings, fell 6.3% in April, offsetting the 5.5% rise in March. Nationally, there were 1.45 million homes for sale or under contract at the end of April, which was up 20.8% from April 2024.
Tariff Timeout: The New York-based U.S. Court of International Trade has ruled that President Donald Trump overstepped his authority in imposing sweeping tariffs on all U.S. trade partners. This ruling invalidates the tariffs that were established on April 2. Trade experts argue that the global trade war is far from over. While a setback for Trump, the court’s ruling is unlikely to deter him from seeking to reestablish the tariffs under a different authority. The administration has appealed the decision; however, the court is unlikely to stay its own decision. The appeal could ultimately end up in the Supreme Court. Trade experts and lawyers said the administration has other legal avenues to prosecute the trade war uninhibited by the Court of International Trade’s decision.
Sourcing for this section: The Wall Street Journal, “How Student-Loan Crisis Will Show Up in the Economy,” 5/26/2025; The Wall Street Journal, “First-Time Home Buyers Downsize Amid Tight Supply, High Interest Rates,” 5/23/2025; The Wall Street Journal, “Pending Home Sales Slump as Mortgage Prices Weigh,” 5/29/2025; The Wall Street Journal, “Home Sales in April Fell for the Second Straight Month,” 5/22/2025; and The Wall Street Journal, “Tariff Ruling Is a Setback for Trump but Doesn’t End Trade War,” 5/29/2025
Don’t Let the Pursuit of Perfection Be an Obstacle to Greatness
“You can do anything, but not everything.” – David Allen
Over the years, we have heard various forms of the highlighted quote from David Allen, the author of “Getting Things Done.” No matter how it is said or in which context, it remains one of our favorites because of its applicability to the art and science of system design broadly and trend following specifically. In other words, one can design an investment system that can do almost anything, but not everything.
In this way, investing imitates life. If one pours their energy into any one endeavor to the exclusion of all others, there is a reasonably high likelihood they will achieve it. However, this approach means it is less likely the person will master other skills, especially as the standard or playing field increases in its complexity. That’s the tradeoff.
Take, for example, sports, where it is common in high school and even at some levels of collegiate athletics for players to excel in multiple arenas. As one moves up in competition, however, it is far less likely that this will occur. It’s the reason you don’t see many Olympic triple jumpers that are also on the basketball team, even though they broadly may have some overlapping skills. At some point, one must choose what is most important to fine-tune techniques accordingly.
Investing Tradeoffs: From Responsiveness to Taxes
What is fascinating about the financial markets and investing is that, many times, focusing on one aspect or benefit brings a diametrically opposing consequence. To illustrate this point, consider the impact of having very responsive systems and the ensuing effect on taxes. At a high level, as trading decisions are executed more frequently, whether systematically or discretionarily, the odds of short-term gains increase, making the final result less tax-efficient. Acting hastily means an investor may achieve the desired outcome of exiting before declines occur more often, or participating in the earlier stages of increases, but the tradeoff is an after-tax return that is inferior to that of a less-responsive system.
Some investors may eschew tactical asset management altogether, favoring passive investing strategies that are on average more likely to be invested in stocks. This can work great for long periods, until a financial crisis causes a drawdown large enough to have them crying uncle. Without a tested plan for re-entering markets, the exact rally they intended to never miss may pass them over. This is a major takeaway from the annual DALBAR Quantitative Analysis of Investor Behavior (QAIB) report.
Reducing the Side Effects of Investing
In our opinion, one of the most important strengths of good systematic asset managers is not a hard skill, such as coding, but rather the soft skill of having enough humility to realize that we cannot solve every scenario. While we are always on the hunt for ways to reduce or even eliminate the side effects of trend following, our primary focus is on tuning the strengths and minimizing the weaknesses in a way that can help our clients.
The recent market conditions are a prime example of this principle. Capturing the relatively smooth U.S. equity trends of late 2023 and 2024 in a tax-efficient manner required rules that ignored small blips and tilted exposure away from weaker real estate and international equities. If you wanted to immediately capture the sudden reversal toward international strength in December 2024 and January 2025, it would have likely meant inferior performance in the preceding period, both on a before- and after-tax basis.
Some clients don’t want to hear that there are constraints and tradeoffs. They want to believe that for a 1% fee, a financial advisor can wave a magic wand and always beat “the market” (whatever their definition of “the market” may be). We wish it were that easy!
In fact, another excellent example of the maddening investing tradeoffs that exist is that some of the best systems for performance over 1 to 5 years are terrible for 30- to 40-year performance. So, even though most clients should be focused on the latter, they tend to make decisions on the former.
At Spartan Planning Group, we want to provide our clients with the investment foundation and complementary tools and services to help them toward their desired outcome. We also want to help our clients enjoy the best of both worlds, participating in prolonged rallies while avoiding the worst of protracted declines. It is not perfect, but nothing is.
In our view, investing is not about perfection. Rather, it’s about not letting the pursuit of perfection get in the way of greatness.
Disclaimer: this note is for general update purposes related to the strategy and approach of Spartan Planning portfolios. Every client’s situation including Risk Profile, Time Horizon, Contributions, and Distributions is different from other clients. Your particular exposure to any given asset class will depend on your goals, risk profile, and how tactical or passive your risk profile calls for. If there have been changes to your risk profile and/or goals or if you wish to discuss them in more depth please contact your advisor. This email and the data herein is not a solicitation to invest in any investment product nor is it intended to provide investment advice. It is intended for information purposes only and should be used by investment professionals and investors who are knowledgeable of the risks involved. No representation is made that any investment will or is likely to achieve results comparable to those shown or will make any profit at all or will be able to avoid incurring substantial losses. While every effort has been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Historical data are presented for informational purposes only. Investment programs described herein contain significant risks. A secondary market may not exist or develop for some investments portrayed. Past performance is not indicative of future performance. Investment decisions should be made based on the investors specific financial needs and objectives, goals, time horizon, tax liability, risk tolerance and other relevant factors. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Investors should consider the underlying funds’ investment objectives, risks, charges and expenses carefully before investing. The Advisor’s ADV, which contains this and other important information, should be read carefully before investing. ETFs trade like stocks and may trade for less than their net asset value. Spartan Planning Group, LLC (“Spartan” or the “Advisor”) is registered as an investment adviser with the United States Securities and Exchange Commission (SEC). Registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the Adviser has attained a particular level of skill or ability. Indexes are unmanaged and do not incur management fees, costs, and expenses. Spartan’s risk-management process includes an effort to monitor and manage risk, but should not be confused with and does not imply low risk or the ability to control risk. There are risks associated with any investment approach, and Spartan strategies have their own set of risks to be aware of. First, there are the risks associated with the long-term strategic holdings for each of the strategies. The more aggressive the Spartan strategy selected, the more likely the strategy will contain larger weights in riskier asset classes, such as equities. Second, there are distinct risks associated with Spartan Strategies’ shorter-term tactical allocations, which can result in more concentration towards a certain asset class or classes. This introduces the risk that Spartan could be on the wrong side of a tactical overweight, thus resulting in a drag on overall performance or loss of principal. International investments may involve additional risks, which could include differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks. Diversification strategies do not ensure a profit and do not protect against losses in declining markets.