Cyclical Sector Timing in Sweden: +0.78% Excess CAGR, 25% Cash Rate
Cyclical Sector Timing in Sweden: Positive Excess, Extreme Variance
Sweden is one of two dedicated markets in our 15-exchange study with positive excess returns. The Swedish cyclical timing strategy returned 9.67% annually over 24 years vs 8.89% for SPY, a +0.78% annual edge. Max drawdown -48.02%.
Contents
The caveat: Sweden has the widest return distribution of any dedicated market. 2005: +46.8%. 2006: +49.3%. 2013: +45.9%. But 2007: -42.8%. Max drawdown of -48.02% reflects this volatility. This isn't a low-risk result. It's a high-return, high-variance result where the positive years more than compensate for the painful ones.
Method
| Parameter | Value |
|---|---|
| Universe | STO (Stockholm Stock 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 | 6 of 24 (25%) |
| Avg stocks | 27.6 |
| 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) | 9.67% | 8.89% |
| Excess CAGR | +0.78% | — |
| Max drawdown | -48.02% | -36.27% |
| Sharpe ratio | 0.344 | — |
| Beta | 0.865 | 1.0 |
| Down capture | 73.38% | 100% |
| Up capture | 108.19% | 100% |
| Cash periods | 6 of 24 | — |
| Avg stocks held | 27.6 | — |
The 108.19% up capture is the defining number. Sweden captures more than 100% of the market's up moves when the signal is on. The 25% cash rate (6 of 24 years) acts as the downside buffer. This is a high-participation strategy that earns its excess through outperformance in expansion years rather than through drawdown protection.
Key Periods
2005-2006: The commodity supercycle surge
| Year | Portfolio |
|---|---|
| 2005 | +46.8% |
| 2006 | +49.3% |
Two consecutive near-50% years. Sweden's industrial exporters (Atlas Copco, SKF, Sandvik) and materials companies (SSAB, Boliden) surged on global commodity demand. The ROE screen captured the highest-quality operators in each category.
2007: The sharpest single-year loss
-42.8% in 2007. Swedish industrials fell hard as global growth fears preceded the financial crisis. The signal stayed on (revenue growth was still positive going into 2007), but stock prices fell ahead of the fundamental deterioration. This is the lag problem with annual rebalancing: the signal uses FY data with a 45-day lag, so mid-cycle reversals get captured late.
2013: Full recovery
+45.9% in 2013. Swedish industrials had one of the strongest post-crisis recoveries in Europe. SSAB, Sandvik, and Atlas Copco all posted strong revenue growth as European manufacturing recovered. The portfolio held 27-30 names, equal-weighted.
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 | 0.0% (CASH) | +7.9% | — |
| 2005 | +46.8% | +8.9% | +37.9% |
| 2006 | +49.3% | +20.9% | +28.4% |
| 2007 | -42.8% | -13.7% | -29.1% |
| 2008 | -9.2% | -26.1% | +16.9% |
| 2009 | +32.4% | +13.4% | +19.0% |
| 2010 | 0.0% (CASH) | +32.9% | — |
| 2011 | -10.2% | +4.1% | -14.3% |
| 2012 | +13.6% | +20.9% | -7.3% |
| 2013 | +45.9% | +24.5% | +21.4% |
| 2014 | +16.8% | +7.4% | +9.4% |
| 2015 | +7.5% | +3.4% | +4.1% |
| 2016 | +27.5% | +17.7% | +9.8% |
| 2017 | -3.6% | +14.3% | -17.9% |
| 2018 | +13.9% | +10.9% | +3.0% |
| 2019 | +2.4% | +7.1% | -4.7% |
| 2020 | +51.9% | +40.7% | +11.2% |
| 2021 | 0.0% (CASH) | -10.2% | — |
| 2022 | +23.6% | +18.3% | +5.3% |
| 2023 | +16.0% | +24.6% | -8.6% |
| 2024 | +4.2% | +14.7% | -10.5% |
Limitations
High max drawdown. -48.02% requires real conviction. The 2007-2008 sequence (-42.8% then -9.2%) created a cumulative hit that took years to recover.
Currency. Returns are in SEK. USD/SEK fluctuations affect USD-equivalent returns.
Small universe. 27.6 average stocks with a 30-stock maximum means the portfolio is concentrated. A few bad picks in a given year create significant drag.
Four early cash years (2001-2004). Thin FMP data for early STO coverage reduces the investable period and the CAGR calculation includes these zero-return years.
Part of a Series: Global | US | UK | Switzerland | India | Germany | Canada | Australia
Data: Ceta Research (FMP financial data warehouse). Universe: STO cyclical sectors. Period: 2001-2024, annual rebalance (July). Past performance doesn't guarantee future results. This is educational content, not investment advice.
