The essentials at a glance
- The amount sits in two building blocks: an equity block and a long government bond block.
- Once a quarter the version rebalances to its target weight, 55 to 45 in the standard version.
- The goal: use both blocks' swings against each other, instead of holding only one side.
- Between the dates nothing happens, even when both sides fall at the same time.
The rule at a glance
- Building blocks and weights
- Equity block and long government bond block, 55 to 45 in the standard version.
- Rebalancing
- On the version's rebalancing date, once a quarter in the standard version.
- Costs
- Two orders on the date, trading spread on both sides and tax on realised gains.
- Data basis
- Close prices of both blocks, no synthetic history before a single launch year.
What you will find on this page
Pick the values, put them into practice and stay the course.
ParametersImplementation and TaxesStaying the CourseLeveraged ETFs can lose a large part of their value in a short time.
HFEA stands for HEDGEFUNDIE's Excellent Adventure. In the version common today, it splits the money across two leveraged ETFs: 55 percent US stocks, 45 percent long-dated US Treasuries. Once a quarter it is pushed back to 55/45, selling from the winner and buying more of the loser.
The idea behind it: long-dated Treasuries have risen in many equity crises. One block is meant to catch the other, and the pushing back sells whichever block rose and buys more of the one that fell.
The amount you have set aside for this strategy sits in two blocks. One follows the stock market, the other long-dated government bonds. In the standard version 55 percent go into the equity block and 45 percent into the bond block, and once a quarter there is a date. The 55/45 split and the quarterly rhythm are the values of the standard version and serve as the example here; other splits and rhythms are possible and are described in the chapter Parameters.
The curve is the equity share, the horizontal line the target weight.
If your version has a band, the shading is the tolerated deviation; the markers sit on the dates on which rebalancing happened.
Returns are deliberately absent from this figure; what came out in the recent years is in the chapter Backtest.
On the date, the actual shares are compared against the target weights and both are turned back. That means: selling part of the block that rose, buying the one that fell.
An example with round amounts: you start with 5,500 euros in the equity block and 4,500 euros in the bond block. A quarter later they stand at 6,600 and 4,200 euros, 10,800 euros in total. 55 percent of that is 5,940 euros, 45 percent is 4,860 euros. You sell 660 euros of the equity block and buy 660 euros of the bond block; after that the split is back at 55/45.
In 2022 both sides fell at the same time; you would still have rebalanced on the dates, because the rule knows no exception.
Between the dates nothing happens. No assessment, no exception.
A band appears only as a setting: if you set one, other trading triggers apply, described at the trigger in the chapter Parameters. This band check is not part of the version from the original thread.
The values of your version, that is equity share, rhythm and band, are in the chapter Parameters.