Cyclical Sector Timing in the UK: Lowest Max Drawdown of Any Market
Cyclical Sector Timing in the UK: Lowest Max Drawdown of Any Market Tested
The UK produced the lowest max drawdown in our entire 15-exchange study.
Contents
LSE cyclical timing (2001-2024): 7.94% CAGR, -28.54% max drawdown. That drawdown figure is better than SPY (-36.27%) and better than any other dedicated market in the study. The strategy missed some rallies due to five cash periods, including three in a four-year window post-Brexit, but preserved capital more consistently than anywhere else.
The tradeoff: -0.95% excess CAGR. You got lower losses but also slightly lower long-term returns than SPY.
Method
| Parameter | Value |
|---|---|
| Universe | LSE (London 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 | 5 of 24 (21%) |
| Avg stocks | 19.7 |
| 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) | 7.94% | 8.89% |
| Excess CAGR | -0.95% | — |
| Max drawdown | -28.54% | -36.27% |
| Sharpe ratio | 0.277 | — |
| Beta | 0.653 | 1.0 |
| Down capture | 53.03% | 100% |
| Up capture | 81.51% | 100% |
| Cash periods | 5 of 24 | — |
| Avg stocks held | 19.7 | — |
The -28.54% max drawdown is the lowest of any market in the study, developed or emerging. It reflects both the quality of UK industrial companies and the cash periods that stepped out before sustained declines.
The 53.03% down capture is the second-best among dedicated markets (after Canada's 28.4%). Combined with 81.51% up capture, the result is a strategy that participates meaningfully in upside while protecting on the downside.
Key Periods
2009: Strong post-crisis recovery (+38.4%)
UK cyclical stocks recovered sharply after 2008. UK-listed mining companies (BHP, Rio Tinto, Anglo American), industrials (Rolls-Royce, BAE Systems), and consumer cyclicals bounced hard on the global recovery. +38.4% in 2009 is the portfolio's best year.
Post-Brexit cash cluster: 2014, 2015, 2017
Three of five cash periods occurred in a tight window. The Brexit referendum uncertainty (2016 vote, aftermath) suppressed capital investment across UK industrials. Companies delayed expansion. Revenue growth turned flat or negative. The signal went to contraction mode.
This is the clearest example in the study of macro policy creating sustained signal suppression. It wasn't a one-year event. The uncertainty about trading terms persisted for years, and the revenue data reflected it.
2024: Recent strength (+20.9%)
2024 was one of the portfolio's stronger recent years. UK cyclical companies benefited from post-Brexit trade normalization and manufacturing investment picking up. The signal was on, the ROE screen selected quality operators, and the returns followed.
Full Annual Returns
| Year | Portfolio | SPY | Excess |
|---|---|---|---|
| 2001 | -6.6% | -20.8% | +14.2% |
| 2002 | -6.4% | +3.3% | -9.7% |
| 2003 | +30.2% | +16.4% | +13.8% |
| 2004 | +19.1% | +7.9% | +11.2% |
| 2005 | +30.2% | +8.9% | +21.3% |
| 2006 | +21.3% | +20.9% | +0.4% |
| 2007 | -15.2% | -13.7% | -1.5% |
| 2008 | -15.7% | -26.1% | +10.4% |
| 2009 | +38.4% | +13.4% | +25.0% |
| 2010 | 0.0% (CASH) | +32.9% | — |
| 2011 | -5.9% | +4.1% | -10.0% |
| 2012 | +19.4% | +20.9% | -1.5% |
| 2013 | +12.3% | +24.5% | -12.2% |
| 2014 | 0.0% (CASH) | +7.4% | — |
| 2015 | 0.0% (CASH) | +3.4% | — |
| 2016 | +8.7% | +17.7% | -9.0% |
| 2017 | 0.0% (CASH) | +14.3% | — |
| 2018 | +9.2% | +10.9% | -1.7% |
| 2019 | -5.8% | +7.1% | -12.9% |
| 2020 | +41.0% | +40.7% | +0.3% |
| 2021 | 0.0% (CASH) | -10.2% | — |
| 2022 | +17.1% | +18.3% | -1.2% |
| 2023 | +5.1% | +24.6% | -19.5% |
| 2024 | +20.9% | +14.7% | +6.2% |
Limitations
Brexit suppression. The 2014-2017 signal disruption was a real economic effect, not a data artifact. But it's unlikely to repeat with the same intensity. Future UK cyclical signal quality may be higher.
Currency. Returns are in GBP. USD/GBP fluctuations affect USD-equivalent returns.
Small average universe. 19.7 average stocks is near the minimum for diversification. In some years, fewer stocks qualify, concentrating exposure.
2010 missed rally. The cash period in 2010 cost the portfolio SPY's +32.9%. This was the biggest single cash-period miss in the UK data.
Part of a Series: Global | US | Switzerland | Sweden | India | Germany | Canada | Australia
Data: Ceta Research (FMP financial data warehouse). Universe: LSE cyclical sectors. Period: 2001-2024, annual rebalance (July). Past performance doesn't guarantee future results. This is educational content, not investment advice.
