HFEA stands for HEDGEFUNDIE's Excellent Adventure.
Read from the start: chapter 1 The RuleLeveraged ETFs can lose a large part of their value in a short time.
The rule is the same everywhere. What differs are the products that can fill the two roles, and the tax on every rebalancing.
The difference is larger here than for other strategies. In the United States there are leveraged funds for both roles and often a tax-advantaged account; in Europe there is no exact counterpart for the bond role and no tax exemption for rebalancing.
Products
The strategy needs two roles: a leveraged equity block on a broad US index and a bond block on long-dated US Treasuries.
The equity role can be filled in Europe. Leveraged products on broad US indices exist as funds under European law up to twofold leverage; threefold leverage is available only as an exchange traded debt security.
For the bond role there is no exact counterpart: a fund with the leverage and the maturity band of the US block is not available. Available are unleveraged long-maturity holdings on US Treasuries, with and without a currency hedge, both as funds, and two debt securities: one with five times leverage on long-dated US Treasuries and one with three times leverage on ten-year Treasuries, that is with a shorter maturity.
For Europe the page calculates with a version made of two funds under European law: a twice-leveraged product on the S&P 500 and an unleveraged ETF on US Treasuries with more than twenty years to maturity, half each, rebalanced quarterly. The split comes from ZahlGraf's Exzellente Abenteuer, Teil 12 (Reddit, 2022), there the more cautious of his two European variants. ZahlGraf names the accumulating share class of the bond ETF; the page calculates with the distributing one, because its price history reaches further back. The version describes what is common in the community; it is not advice.
This page states no further weights. 55/45 is the split of the US blocks; ZahlGraf's European variants also used other splits, among them 65/35 and 80/20 out of twice-leveraged equities and unleveraged long-maturity holdings.
A combination of European blocks sits closer to a classic mix of stocks and bonds above all because of the lower equity leverage. In ZahlGraf's backtest from 1943, an unleveraged bond leg took volatility out above all and cost comparatively little return (part 5). A 5x bond leg fluctuates more strongly than the bond leg of the original.
The difference between a fund and a debt security is not merely formal. A fund holds ring-fenced assets; a debt security is a claim against the issuer, even when collateralised.
In the United States both roles are available as exchange traded funds: a leveraged product on a broad US equity index and a leveraged product on long-dated US Treasuries. This is the setting the strategy was designed in.
Both blocks are funds rather than debt securities, so the issuer credit risk that comes with part of the European product range does not arise here.
What does not change is what the bond block is. It is built on long maturities and leveraged on top of that, so it is not the safe part of the portfolio; it fluctuates as strongly as the equity side, sometimes more.
Implementation
Rebalancing happens on the dates of your version, once a quarter in the standard version. A band is a setting of your version; what it sets off is described at the trigger in the chapter Parameters.
In practice rebalancing means two orders on the same day, one on each side. Bid-ask spreads differ across trading venues, and not every broker carries the products in question.
Both blocks depend on the US market while your account settles in euro. The exchange rate therefore acts on both sides at once, except on currency-hedged building blocks, regardless of whether the strategy is working at that moment.
If you contribute regularly, those inflows can be directed into whichever block is underweight. That pushes the portfolio towards the target weights without anything being sold, and it replaces part of the sales.
Rebalancing means two orders on the same day, one on each side, on the dates of your version; the standard version has one date per quarter.
The prices of both blocks and of the underlying indices are struck at the same time, so there is no time zone gap between the signal to act and the execution. Both blocks and the account are denominated in the same currency, which removes the exchange rate from the picture entirely.
If you contribute regularly, those inflows can be directed into whichever block is underweight. That pushes the portfolio towards the target weights without anything being sold.
Tax
This is a rough orientation and does not replace tax advice. Individual cases are a matter for a tax adviser. As of November 2026.
Within the EU the tax treatment of leveraged products differs considerably from country to country. For EU countries other than Germany, Austria and France this page makes no statement; the respective national tax law applies there.
For this strategy one thing matters above all: rebalancing means selling, and selling realises gains. In Germany, realised gains are subject to flat-rate investment income tax (Abgeltungsteuer), plus solidarity surcharge and church tax where applicable.
Rebalancing regularly therefore means paying the tax as the strategy runs rather than at the end. From that point on the amount no longer compounds. Exactly this effect is missing from backtests out of the US environment, because the strategy frequently runs there inside tax-advantaged accounts.
From that follows the practical lever of this region: inflows into the underweight block replace part of the taxable sales. The rest stays taxable, because at some point inflows alone are no longer enough to close a large deviation.
The legal form of the blocks changes the size of the effect. For investment funds with a sufficiently high equity ratio, the partial exemption (Teilfreistellung) leaves part of the income untaxed; exchange traded debt securities are not investment funds, so it does not apply to them, but in return no advance lump sum falls due on them. Above all for accumulating funds the advance lump sum (Vorabpauschale) comes on top, an annual prepayment on later gains that falls due even without a sale. Under German law, offsetting of losses also applies.
Personal circumstances, such as investment income feeding into social contributions or a business account, can reverse this picture; on those this page makes no statement.
In Austria, realised gains from capital assets are subject to capital gains tax (Kapitalertragsteuer, KESt) at a flat 27.5 %. For this strategy that means, as in any taxable account: rebalancing means selling, and selling realises gains; from that point on the amount paid out no longer compounds.
There is no partial exemption. For funds, deemed distributed income (ausschüttungsgleiche Erträge) is added every year and is taxable even without a sale.
Losses can only be offset against other income from capital assets of the same calendar year, such as price gains or distributions, but not against interest on bank deposits. There is no loss carry-forward: whatever loss remains at the end of the year lapses.
In a taxable account (compte-titres), realised gains in France are by default subject to the flat-rate tax Prélèvement forfaitaire unique (PFU, flat tax); on election, the progressive income tax scale can apply instead to all investment income of a year. As of November 2026 the flat rate is 31.4 %, made up of 12.8 % income tax and 18.6 % social charges. For this strategy that means, as in any taxable account: rebalancing means selling, and selling realises gains.
Interest on a loan used to buy securities is not deductible under the flat tax.
Losses (moins-values mobilières) are first offset against gains of the same kind in the same year; whatever remains after that can be carried forward for ten years.
The original thread describes the strategy inside a tax-advantaged retirement account. In such an account rebalancing triggers no ongoing tax, and the strategy's main source of friction outside the market simply does not exist.
In a taxable account it does. Every rebalancing sells part of whichever block has risen, which realises a gain, and positions held for a year or less are taxed less favourably than long-held ones. The rebalancing rhythm therefore produces taxable events several times a year by construction.
This difference is the single most important reason why published US results do not transfer to a European taxable account. The rule is the same; the setting it runs in is not.
For a tax-advantaged US account, read the curve without tax; this page does not compute the tax of a taxable US account.