History

On 5 February 2019 a user going by HEDGEFUNDIE presents the idea in the Bogleheads forum: two leveraged products, one on the US stock market and one on long-dated US Treasuries, at first in a ratio of 40 to 60, rebalanced quarterly. Two conditions are there from the start and often get lost later: he describes a ring-fenced part of his wealth, around 15 percent, and he runs the strategy inside a tax-advantaged account, a Roth IRA. The objection that a band check has problems of its own is there from the start as well. The thread and its continuation run for years and grow to thousands of posts between them.

On 12 August 2019, after half a year of discussion, the author changes the weights from 40/60 to 55/45, in favour of the equity side. That is the split known as HFEA today and the one the preset on this page carries. The quarterly rhythm stays. The author gave two reasons for it: the outcome that his backtest favoured most, and having no better reason for a different date.

Part I ran for about half a year. After the change of weights on 12 August 2019 the thread is split, and the continuation starts as part II. It treats the revised strategy: the idea matters less and the execution more, with product choice, accounts and inflows.

Since August 2021 the strategy has a subreddit of its own, r/HFEA, and the discussion moves from presenting to computing. The user modern_football shows that the rebalancing date scatters without producing a pattern that could be used in advance. That the common splits come out of a period of falling rates is older: the objection stands in the original thread in February and March 2019 already, and in February 2022 ZahlGraf gives the reasoning for it (part 4).

A later post by modern_football from r/trueHFEA does something else: it picks the weights ahead of time from its own assumptions about stocks and bonds (weight choice from own assumptions). That is an example of that approach, not the origin of the objection.

In parallel the series ZahlGrafs Exzellente Abenteuer recomputes the strategy for Europe, from the data series from 1943 through the European variants to the conclusion for Germany. The result there: HFEA can be implemented in Germany only to a limited extent. After tax, the European version with twice-leveraged equities and unleveraged long-maturity holdings brought no worthwhile advantage over an unleveraged S&P 500. As an alternative ZahlGraf examined a twice-leveraged version on the S&P 500 with a 200-day line; that trend following has a page of its own. On top of that there is no exact counterpart for the bond role in Europe, and the tax on every rebalancing eats part of what the US calculations show.

In the same year stocks and long-dated bonds fell at the same time and sharply. That is exactly the case the strategy does not provide for: the two blocks are meant to catch each other, and here they did not. Every discussion of HFEA has run along this point since, and every backtest looks different depending on whether it ends before or after 2022.