Cyclical Sector Timing in Australia: Resources-Driven Signals, 7.45%
Cyclical Sector Timing in Australia: Resources Drive the Signal
Australia is the most commodity-concentrated economy in our 15-exchange study. Basic Materials and Energy dominate the ASX cyclical universe. Iron ore, coal, gold, and oil companies make up a substantial portion of the investable universe. When commodity prices surge, Australian cyclical revenue growth is broad and the signal fires cleanly. When prices fall, the signal shuts off.
Contents
The 24-year backtest (2001-2024) returned 7.45% annually, 1.45% below SPY's 8.89%. Max drawdown: -29.01%, better than SPY's -36.27%. The same three cash periods as the US (2010, 2016, 2021), which is expected, since Australian FY data and US FY data tend to confirm the same global cycle signals with similar timing.
Method
| Parameter | Value |
|---|---|
| Universe | ASX (Australian Securities Exchange) |
| Sectors | Basic Materials, Industrials, Energy, Consumer Cyclical |
| Signal | ≥ 50% of cyclical stocks with positive YoY FY revenue growth |
| Selection | Top 30 by ROE, among stocks with positive revenue growth AND ROE ≥ 5% |
| Rebalancing | Annual (July) |
| Period | 2001–2024 |
| Cash periods | 3 of 24 (12%) |
| Avg stocks | 23.5 |
| Benchmark | S&P 500 Total Return (SPY) |
Full methodology: backtests/METHODOLOGY.md US flagship blog (methodology + SQL): blog.tradingstudio.finance/cyclical-sector-timing-us-backtest
Results
| Metric | Portfolio | S&P 500 |
|---|---|---|
| CAGR (2001–2024) | 7.45% | 8.89% |
| Excess CAGR | -1.45% | — |
| Max drawdown | -29.01% | -36.27% |
| Sharpe ratio | 0.239 | — |
| Beta | 0.741 | 1.0 |
| Down capture | 73.79% | 100% |
| Up capture | 83.49% | 100% |
| Cash periods | 3 of 24 | — |
| Avg stocks held | 23.5 | — |
The -29.01% max drawdown is among the lower figures in the study. Australian mining and energy companies tend to have strong balance sheets (they need to survive commodity cycles) and the ROE screen selects those that are generating real returns on capital rather than just riding commodity price momentum. That quality filter helps limit the worst losses.
Key Periods
2005-2006: The commodity supercycle
| Year | Portfolio |
|---|---|
| 2005 | +35.8% |
| 2006 | +33.1% |
Two consecutive 33%+ years. China's urbanization drove iron ore, copper, and coal demand. Australian miners posted broad revenue growth. The signal was firmly on and the ROE screen captured the quality operators: BHP, Rio Tinto, Fortescue predecessors, Woodside. These two years account for a large portion of the full-period cumulative return.
2021: Worst year (-21.3%)
2021 was the portfolio's worst single year. COVID supply chain disruptions hit mining operations hard. Labour shortages, logistics failures, and equipment delays suppressed volumes even as commodity prices were rising in some cases. Revenue growth across the Australian cyclical universe was mixed, but the portfolio held names that saw production disruptions. -21.3% is an outlier. No other year comes close to that loss.
2020: Strong recovery (+39.7%)
The COVID crash in early 2020 was followed by a fast recovery for Australian resources. China's stimulus-driven infrastructure spending drove iron ore demand higher than before COVID. +39.7% in 2020.
Full Annual Returns
| Year | Portfolio | SPY | Excess |
|---|---|---|---|
| 2001 | 0.0% (CASH) | -20.8% | — |
| 2002 | 0.0% (CASH) | +3.3% | — |
| 2003 | 0.0% (CASH) | +16.4% | — |
| 2004 | +23.4% | +7.9% | +15.5% |
| 2005 | +35.8% | +8.9% | +26.9% |
| 2006 | +33.1% | +20.9% | +12.2% |
| 2007 | -8.4% | -13.7% | +5.3% |
| 2008 | -22.5% | -26.1% | +3.6% |
| 2009 | +24.2% | +13.4% | +10.8% |
| 2010 | +18.9% | +32.9% | -14.0% |
| 2011 | -14.7% | +4.1% | -18.8% |
| 2012 | +6.3% | +20.9% | -14.6% |
| 2013 | +15.4% | +24.5% | -9.1% |
| 2014 | -7.0% | +7.4% | -14.4% |
| 2015 | +10.4% | +3.4% | +7.0% |
| 2016 | +10.5% | +17.7% | -7.2% |
| 2017 | +20.0% | +14.3% | +5.7% |
| 2018 | +5.6% | +10.9% | -5.3% |
| 2019 | +3.9% | +7.1% | -3.2% |
| 2020 | +39.7% | +40.7% | -1.0% |
| 2021 | -21.3% | -10.2% | -11.1% |
| 2022 | +12.9% | +18.3% | -5.4% |
| 2023 | +10.2% | +24.6% | -14.4% |
| 2024 | +12.2% | +14.7% | -2.5% |
Limitations
Commodity concentration. The ASX cyclical universe is more concentrated in materials and energy than any other market in the study. Single commodity cycle moves can dominate annual returns.
Currency. Returns are in AUD. USD/AUD fluctuations affect USD-equivalent returns. The AUD is a commodity-linked currency, which creates correlation between returns and exchange rate moves.
2021 anomaly. The -21.3% loss in 2021 is an outlier driven by COVID supply disruptions specific to Australian mining operations. This type of event is hard to signal with annual revenue data.
Three early cash years (2001-2003). FMP data coverage builds up over 2001-2003, so the strategy doesn't start investing until 2004.
Part of a Series: Global | US | UK | Switzerland | Sweden | India | Germany | Canada
Data: Ceta Research (FMP financial data warehouse). Universe: ASX cyclical sectors. Period: 2001-2024, annual rebalance (July). Past performance doesn't guarantee future results. This is educational content, not investment advice.
