You’ve saved diligently for five years, eyeing that two-bedroom apartment in Paris’s 11th arrondissement or a modest house in Lyon’s burgeoning suburbs. Your portfolio, split between a PEA (Plan d’Épargne en Actions) stuffed with MSCI World ETFs and a CTO (Compte-titres Ordinaire) holding managed futures, shows beautifully controlled volatility. Then 2022 hits. Both equities and bonds tank simultaneously. Your “diversified” portfolio drops 25% just as you’re ready to make an offer. The notaire’s fees (frais de notaire) and deposit (dépôt de garantie) suddenly feel insurmountable.
This scenario exposes the central question haunting French investors: does all this sophisticated diversification actually reduce risk, or merely create the illusion of safety while charging you higher fees?
The Promise of “Volatility-Controlled” Investing
The marketing pitch is seductive. Products like NTSG (WisdomTree Global Efficient Core UCITS ETF) promise to deliver “90% equities and 60% bonds in a single fund” through financial engineering called return stacking. The theory, rooted in Cliff Asness’s research from 1996, suggests that a leveraged 60/40 portfolio can outperform 100% equities at similar risk levels. WisdomTree’s own materials claim their Efficient Core strategy achieves “optimal efficiency” by combining diversification with modest leverage.
For a French investor saving for a résidence principale (primary residence) on a five-year horizon, this sounds perfect. You get equity-like returns with smoother ride, theoretically protecting you from the worst drawdowns. The ETF handles quarterly rebalancing automatically, sparing you the prélèvement à la source (pay-as-you-earn withholding) complications that arise from manual rebalancing in a CTO.
But here’s where theory collides with reality. As one analyst’s independent research reveals, WisdomTree’s backtesting uses corporate bonds, while the actual NTSG ETF holds government bond futures. This subtle switch inflates historical returns by approximately 1.1 percentage points annually over nearly a century, a difference that compounds into “gigantic” discrepancies. When you adjust for what NTSG actually holds, the alleged outperformance nearly vanishes.
When Diversification Fails: The 2022 Case Study
The Reddit discussion that sparked this debate perfectly captures the frustration. A user questioned whether holding NTSG and managed futures would actually help if equities fell, since both asset classes could decline together. The uncomfortable answer? They were right to be skeptical.
2022 provided the ultimate stress test. A portfolio of 2/3 NTSG and 1/3 managed futures would have suffered because both equities and bonds posted negative returns. The leveraged nature of NTSG amplified the damage, while a simple 60/40 portfolio fell around 16%, the 90/60 structure dropped approximately 27%. Your carefully controlled volatility didn’t prevent a catastrophic loss, it merely delayed the recognition that your “diversified” assets were more correlated than the models predicted.
This reveals a critical flaw in modern portfolio theory’s application to medium-term goals. The math works beautifully over 30-year horizons, but when you need the money in five years, sequence risk dominates. A portfolio that shows lower volatility on paper can still experience devastating drawdowns at precisely the wrong moment.
The French Tax Angle: A Hidden Complication
French investors face additional complexity. The fiscalité (tax treatment) of rebalancing matters enormously. In a PEA, internal rebalancing within an ETF like NTSG creates no tax event, precisely the advantage cited by proponents. But if you hold separate ETFs for equities and bonds in a CTO, manual rebalancing triggers capital gains taxes at the PFU (prélèvement forfaitaire unique) rate of 30%, or potentially higher if you opt for the progressive income tax barème.
This creates a perverse incentive. You might stick with a bundled product like NTSG despite its flaws simply to avoid the tax friction of managing separate positions. Yet this tax-driven decision could cost you more in underperformance than you’d save in taxes.
The assurance-vie wrapper offers another alternative, allowing internal arbitrages without fiscal consequences. But here too, the costs often exceed the benefits for medium-term horizons, especially if you need liquidity before the eight-year mark when the tax advantages fully materialize.
Managed Futures: The Mirage of Negligible Correlation
What about that managed futures component? The Reddit user suggested allocating 34% to managed futures (DBMFE) alongside traditional assets. The logic: when equities and bonds both fall, managed futures might remain stable, providing a source of capital without losses.
In practice, managed futures strategies like the KFA MLM Index showed promise in 2022, delivering positive returns while traditional assets collapsed. But this performance comes with its own risks. As detailed analysis shows, the actual ETF implementations (like KMLM) often underperform their theoretical benchmarks by significant margins. The strategies depend on trends continuing, and in choppy markets, they can bleed value steadily.
More importantly, managed futures introduce a new risk: contango in futures markets can erode returns even when the underlying strategy is sound. For a French investor, accessing these products typically requires a CTO, exposing you to the full 30% tax rate on gains, further diminishing the net benefit.
The Segmentation Alternative: Keeping Assets Separate
The original Reddit post touched on a crucial insight: true diversification might require segmenting investments and praying that “one of the three assets remains stable enough to sell without loss.” This crude but honest assessment highlights a fundamental truth.
Consider this alternative structure for a €100,000 home savings goal:
- 40% in a PEA with MSCI World ETF (CW8)
- 26% in short-duration eurozone government bond ETFs
- 34% in a high-yield savings account (livret) or term deposits
This structure isn’t sexy. It won’t impress at dinner parties in Paris’s 16th arrondissement. But it gives you three distinct liquidity pools. If equities crash, you tap the bonds. If both crash, you still have cash. The “volatility” is higher on paper, but your practical risk of missing your home purchase deadline is lower.
The segmentation approach also aligns better with French banking practices. French lenders scrutinize apport personnel (personal down payment) carefully. Showing a stable savings account balance often carries more weight than a volatile brokerage statement, even if the latter has higher expected returns.
The Leverage Trap: When Efficiency Becomes Dangerous
Proponents argue that NTSG’s leverage is modest, only 1.5x applied to the less volatile bond portion. The math checks out: a 1.6 percentage point rise in bond yields would be required to wipe out the collateral. Since the largest daily yield change in 60 years was 0.65 points, the risk seems remote.
But this analysis assumes normal market conditions. In a crisis, correlations approach 1.0, and liquidity evaporates. The quarterly rebalancing that works smoothly in calm markets can force fire sales during volatility spikes. The ETF’s mandate to maintain its 90/60 ratio means it must sell equities to meet margin calls on bond futures precisely when you least want to sell.
This mechanical rebalancing creates a hidden form of risque de séquence (sequence risk). Your personal portfolio might survive a downturn, but the ETF’s internal mechanics could lock in losses that you cannot control.
Real-World Performance: The Data Doesn’t Lie
Independent backtesting of the global 90/60 strategy from 1988-2025 shows a mere 0.5 percentage point annual outperformance versus 100% equities, but with higher volatility. The Sharpe ratio (risk-adjusted return) is actually worse than a simple equity portfolio. The traditional 60/40 portfolio, despite lower absolute returns, delivers the best risk-adjusted performance.
The analysis reveals that leveraged 60/40 outperforms during periods when bonds deliver strong positive returns, typically when interest rates are high and falling. This describes the 1980s-2000s period perfectly. But in low-rate environments or when rates rise (like 2022), the strategy underperforms dramatically.
For a French homebuyer in 2026, the relevant question is: are we entering a period of high rates with room to fall, or a period of structural inflation requiring continued rate hikes? The Banque de France‘s own research suggests caution, noting that real interest rates remain volatile.
Practical Recommendations for Medium-Term Goals
Given these realities, what’s a French investor to do?
For home purchases under 7 years:
1. Prioritize capital preservation over optimization. Use Livret A for emergency fund portions, despite modest returns.
2. Segment your assets rather than seeking bundled solutions. Keep equities in a PEA, bonds in a CTO, and cash in regulated savings accounts.
3. Avoid leveraged products like NTSG. The theoretical benefits evaporate over short horizons, while the tail risks remain.
4. If you must use ETFs, stick to simple, unleveraged global equity funds in your PEA and short-duration bond ETFs in your CTO.
5. Consider a PER (Plan d’Épargne Retraite) only if you’re certain you won’t need the funds for your home purchase, as early withdrawal rules are restrictive.
For longer horizons (10+ years):
The calculus changes. Here, NTSG’s modest advantages might compound meaningfully. But even then, the analysis suggests you’re better off with a simple 60/40 portfolio that you rebalance annually, accepting the tax friction in exchange for transparency and control.
The Psychological Dimension: Why We Fall for Complexity
Part of the appeal of products like NTSG lies in their sophistication. French investors, particularly the cadres (executives) and professions libérales (self-employed professionals) who populate Paris’s financial forums, enjoy feeling like they’re employing institutional-grade strategies.
This psychological comfort has real value, it prevents panic selling. But it’s an expensive placebo. The same emotional discipline can be achieved through simpler means: automatic monthly investments (prélèvement automatique), ignoring portfolio statements during downturns, and setting clear rebalancing rules.
The Reddit discussion reveals another psychological trap: the desire for a “set it and forget it” solution. Many commenters prefer NTSG because it handles rebalancing automatically, sparing them the emotional burden. But this automation comes at the cost of flexibility. When your life circumstances change, say, you decide to accelerate your home purchase, you cannot easily adjust the leverage or bond duration.
Conclusion: Theory Versus French Reality
The debate over volatility-controlled portfolios exposes a fundamental tension in personal finance. The mathematical models are correct over infinite time horizons, but individuals face finite deadlines and specific goals.
For the French homebuyer saving over five years, the research is clear: segmented, unleveraged portfolios beat bundled, leveraged ones. The theoretical benefits of volatility control are outweighed by the practical risks of correlation breakdown, tax inefficiency, and sequence risk.
This doesn’t mean diversification is useless. It means we must distinguish between diversification of assets (valuable) and diversification of risk through leverage (dangerous for short horizons). The former spreads your bets, the latter amplifies your exposure to model error.
Before committing to complex products like NTSG, ask yourself: am I being sold sophistication, or genuine risk reduction? The answer, for most French investors with concrete medium-term goals, is the former.
Your future home deserves better than financial engineering that works perfectly, until it doesn’t.
Key Takeaways
- NTSG and similar leveraged ETFs show minimal risk-adjusted outperformance over 100% equity portfolios in independent testing
- The 2022 market crash demonstrated that bonds and equities can fall together, rendering volatility control ineffective
- French tax implications often favor simple, segmented portfolios over bundled complex products
- For home purchases under 7 years, prioritize capital preservation and liquidity over optimization
- Psychological comfort from sophisticated products is real but expensive, discipline matters more than complexity
Next Steps
Review your portfolio’s actual correlation during 2022. If all components fell together, your diversification is theoretical, not practical. Consider segmenting your assets into distinct liquidity pools aligned with your purchase timeline. And before buying any leveraged ETF, demand to see backtesting based on the actual holdings, not proxy indices that inflate historical returns.
