Dear Spartan Client,

Below are the main asset classes utilized in Spartan portfolios and their model-driven exposure heading into November.


At a Glance: Allocation Adjustments heading into November, 2020

  • U.S. Equities: No change from last month. Our portfolios generally remain overweight, as there are uptrends across the intermediate and long term.

  • International Equities: No change to exposure, which is at its baseline allocation, with uptrends remaining across both timeframes.

  • Real Estate: No change. No change. We are at the minimum allocation due to continued downtrends in both timeframes.

  • Intermediate-Term Fixed Income: Decreasing exposure due to the emergence of an intermediate-term downtrend in U.S. Treasuries. The long-term uptrend remains intact. International Bonds will take the exposure vacated by U.S. Treasuries.

  • TIPS: No change to exposure, which is at its baseline allocation, with uptrends remaining across both timeframes.

  • Short-Term Notes and Cash Equivalents: Increasing with exposure vacated by U.S. Intermediate-Term Treasuries.

  • Hedge Strategies: No change from baseline exposure, with uptrends across both timeframes.


Asset Level Overview

Equities and Real Estate

After rallying for most of the month, global equities are closing out on a negative note, with many major indices delivering negative performance in October. At the time of this writing, the S&P 500 Index was down nearly 3%, a quick turnaround from holding positive most of the month. International equities also declined, falling approximately 3%. Emerging market equities, as the lone bright spot among its equity counterparts, rose 1.5% in October. REITs continued their pattern of relative weakness and declined as well, dropping 2.5% for the month. The net effect for our portfolios is unchanged exposure to all equity asset classes, with U.S. Equities slightly overweight its baseline allocation, international at its baseline, and REITs at their minimum allocation.

Fixed Income

Despite the climb in equities, we have repeatedly noted here that fixed income assets have not materially retraced their climb from the height of the COVID shock. As a generally non-correlated asset, this is not necessarily surprising, but in our opinion, it speaks to the underlying nervousness of the equity market recovery. Interestingly, despite what appears to be the expectation of a contested election, as well as an unsettling uptrend in new COVID cases, U.S. Treasuries have in recent weeks weakened to the point of an intermediate-term downtrend. We will subsequently reduce allocations and adjust our fixed income mix toward international bonds, which have remained strong, and short-term U.S. Treasuries.


Three potential macro catalysts for the recent trend changes:

  • Delayed COVID Relief Bill: A pre-election stimulus deal aimed at providing COVID relief appears to be off the table in the United States. Negotiations between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi continue, but White House Spokeswoman Alyssa Farah announced on Tuesday that the timeline is now “weeks, not days.”

  • Potential Market Rotation: In October, several performance divergences appeared for the first time in 2020. First, as a departure from the first 9 months of the year, small- and mid-cap stocks outperformed their large-cap and mega-cap counterparts. Additionally, value indexes outperformed growth in October, though they continue to lag significantly year-to-date.

  • Stronger U.S. Economic Data: The latest housing data continued to be one of the brightest components of the U.S. economy, as the previous month’s single-family construction and overall building permits reached new 13-year highs. Additionally, existing-home sales jumped 9.4% to their highest level since May 2006. Employment data also surprised to the upside, as weekly jobless claims fell more than expected to 787,000, the lowest level since March.

COVID + The 60/40 Conundrum: A Wicked Problem for Financial Planners

“The pandemic’s economic side effects also have significant implications for when and how older adults plan their retirements. Not only have older workers experienced some of the highest rates of job loss of any age band, but in previous recessions, it has also taken older unemployed workers a much longer time to become re-employed than younger ones. That, plus the fact that a recovering stock market has lifted retirement account balances, has no doubt prompted some to ponder early retirement. Yet low-interest rates — while a boon to borrowers — are a headwind for people nearing or in retirement.

All of these trends have implications for the way households — and the advisors who assist them — manage their finances. While the COVID-19 crisis has brought these topics to the forefront, their importance is likely to persist post-pandemic as well.”

– Christine Benz, Morningstar, What the Coronavirus Means for the Future of Financial Planning

A wicked problem is generally defined as one that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often hard to recognize and resolve. The excerpt above from Morningstar’s timely report encapsulates two issues colliding at the current financial intersection. One is a problem we at Spartan saw coming and began writing about extensively three years ago; we’ve been calling it “the 60/40 problem.” The other no one could see coming: COVID and its economic impacts, as well as increasing politicization.

While the Morningstar article does well in framing the challenge advisors and investors face, it repeats many of its predecessors by failing to describe the solution from an investment management perspective. It cites the importance of emergency reserves, healthcare spending, and retirement withdrawal rates, among other things, as the keys to overcoming these challenges. Of course, all these tools are essential to maximizing one’s retirement experience, but as money managers, it feels akin to addressing symptoms while ignoring the root disease.

Moreover, emphasizing these keys without addressing asset management results in a lineup of suboptimal choices. For example, as emergency reserves increase, it naturally comes at the cost of capital available for growth. With yields at all-time lows, this may lead to another suboptimal choice, whether to reduce spending in retirement or settle for less or lower quality healthcare. We believe these choices are more likely to be the last line of defense rather than the essential decisions for investors who leverage better asset management processes that are capable of protecting capital during market drawdowns.

The Uneasy Choice: More Risk

The answer no one wants to advocate is that investors take more risk in the stock market to offset the lack of yield. It’s the choice many target-date funds have been making for some time, increasing their exposure to stocks over the last few years to levels even higher than before the Financial Crisis. In March 2020, repercussions from those decisions were felt among investors whose managers had funneled money into equities without coupling a process for downside protection. It is critical to always have a risk-managed, disciplined approach intended to preserve capital during market drawdowns.

Spartan’s Response to the 60/40 Problem

At Spartan, we believe the answer is simple when it comes to addressing the seemingly complex 60/40 problem: The time has come — well, really it came long ago — to enhance the traditional view with something more suited for the glide path of most investors. By adding what we call “time diversification” through trend following, you can more confidently boost your dependence on both domestic and foreign equities and reduce allocations to underperforming assets. Doing so allows you to often pursue a “growth” profile at a similar overall risk level in situations where historically, you would have had to take a perceived-“safer” moderate growth or balanced approach.

It was not long ago that advisors and investors could rely on bonds to provide enough yield and non-correlation to achieve their financial goals. With those days gone or nearing their end, you must find another answer. As Morningstar outlines, there are many choices playing an important role, but at Spartan, we feel they are perhaps missing the most important point – that you can partner with firms like ours to access a better set of choices.

Please feel free to call or email us for additional details. We would be happy to discuss our take on the current environment with you in greater detail.


David Childs, Ira Ross, Blaise Stevens, and Eric Warren

Spartan Planning

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 investor’s 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 static 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