Sector Mean Reversion in Sweden: 12.63% CAGR and the Highest Win Rate
Sweden's sector rotation strategy returned 12.63% annually from 2000 to 2025, in SEK, against the S&P 500's 8.02%. It beats the index in 57.7% of individual years, the highest win rate of any of the top five exchanges in our study. The tradeoff is a down capture of 109.6%, meaning it amplifies market losses rather than reducing them.
Contents
- Method
- What We Found
- Most Frequently Selected Sectors
- Notable Years
- Full Annual Returns
- Backtest Methodology
- Limitations
- Takeaway
- Part of a Series
- References
We tested sector mean reversion on 14 exchanges. Sweden sits in the top five on absolute returns. Its year-to-year consistency is better than most.
Method
- Data source: Ceta Research (FMP financial data warehouse)
- Universe: STO (Nasdaq Stockholm), market cap > SEK 1B (~$90M USD)
- Period: 2000-2025 (26 years, 104 quarterly rebalance periods)
- Rebalancing: Quarterly (January, April, July, October)
- Signal: Buy all stocks in the bottom 2 sectors by 12-month trailing equal-weighted return
- Benchmark: S&P 500 Total Return (SPY)
- Cash rule: Hold cash if fewer than 2 qualifying sectors exist
- Transaction costs: Size-tiered model
Historical price data with 1-day lag. Full methodology: backtests/METHODOLOGY.md
What We Found
Sweden is consistent. The 57.7% win rate against SPY means the strategy beats the benchmark in most individual years, more often than any other exchange in the top five. The CAGR of 12.63% compounds from that consistency, across years like 2005 (+59.38%), 2009 (+84.14%), and 2019 (+49.25%) that pull the average up.
The honest counterweight: the down capture of 109.6%. Sweden's sector rotation doesn't protect when markets fall. In down markets, it falls more than the benchmark, on average. This is a return-amplifier in both directions, not a defensive play.
| Metric | Portfolio | S&P 500 (SPY) |
|---|---|---|
| CAGR | 12.63% | 8.02% |
| Excess CAGR vs SPY | +4.61% | — |
| Total Return | 2104% | — |
| Max Drawdown | -62.3% | -45.5% |
| Annualized Volatility | 25.0% | — |
| Sharpe Ratio | 0.425 | 0.357 |
| Up Capture | 136.7% | — |
| Down Capture | 109.6% | — |
| Win Rate vs SPY | 57.7% | — |
| Avg Stocks per Period | 28.7 | — |
| Cash Periods | 7 of 104 (7%) | — |
A $10,000 investment in January 2000 grew to roughly $220,400 by end of 2025 under this strategy.
Most Frequently Selected Sectors
Over 104 quarters, these were the sectors that appeared most often as the bottom two by trailing return:
| Sector | Quarters Selected |
|---|---|
| Basic Materials | 38 |
| Real Estate | 31 |
| Communication Services | 28 |
| Technology | 27 |
| Consumer Cyclical | 27 |
| Financial Services | 15 |
Basic Materials dominates. Sweden has a large mining and forestry industry (Boliden, SSAB, SCA, Stora Enso), and these companies cycle through extended periods of sector underperformance that the mean reversion signal picks up reliably. Real Estate and Communication Services together add another 59 quarters of selection.
Notable Years
2001-2002: -27.87% and -38.44%. Sweden's stock market was heavily exposed to telecoms during the dot-com era. Ericsson alone accounted for a large share of the STO index, and it collapsed from 2000 to 2002. The mean reversion strategy bought into beaten-down sectors before they finished falling. The losses in 2001-2002 are the cost of being early. The payoff came in 2003.
2003-2004: +43.84% and +30.02%. The post-crash reversal. Sectors that had been hammered in the prior two years led the recovery. +43.84% in 2003 at +19.71% excess over SPY, followed by +30.02% in 2004 at +19.78% excess. Two-year run of consistent outperformance once the mean reversion kicked in.
2005: +59.38%. The strongest single year in the early period. Basic Materials and Real Estate surged as Sweden benefited from the global commodities cycle and a recovering domestic economy. The +52.21% excess over SPY in a single year is a reflection of how deeply cyclical the selected sectors were.
2008: -36.92% vs SPY -34.31%. Sweden fell harder than the benchmark in the financial crisis. Down capture of 109.6% is the average, and 2008 shows what that looks like in practice. The max drawdown of -62.3% is the deepest of the top five exchanges in the study.
2009: +84.14%. The recovery was strong. Basic Materials and Real Estate, which had been crushed, bounced aggressively. +59.41% excess over SPY in a single year. The same mechanism that produced the 2008 loss produced the 2009 gain.
2019-2020: +49.25% and +36.57%. Back-to-back strong years from beaten-down sectors. 2019's +49.25% (excess: +16.93%) came from Consumer Cyclical and Communication Services that had underperformed. 2020's +36.57% (excess: +20.93%) continued the run despite COVID disruption.
2023: +0.43%. The weakest recent year. The strategy bought sectors that stayed flat. 2023 is the year that shows the signal can fail to identify the right cyclical entry, and when it does, the portfolio just sits.
Full Annual Returns
| Year | Portfolio | SPY | Excess |
|---|---|---|---|
| 2000 | 0.00% (cash) | -10.50% | +10.50% |
| 2001 | -27.87% | -9.17% | -18.70% |
| 2002 | -38.44% | -19.92% | -18.52% |
| 2003 | +43.84% | +24.12% | +19.71% |
| 2004 | +30.02% | +10.24% | +19.78% |
| 2005 | +59.38% | +7.17% | +52.21% |
| 2006 | +33.93% | +13.65% | +20.29% |
| 2007 | +3.83% | +4.40% | -0.58% |
| 2008 | -36.92% | -34.31% | -2.60% |
| 2009 | +84.14% | +24.73% | +59.41% |
| 2010 | +30.14% | +14.31% | +15.84% |
| 2011 | -0.23% | +2.46% | -2.69% |
| 2012 | +23.01% | +17.09% | +5.92% |
| 2013 | +39.97% | +27.77% | +12.20% |
| 2014 | +21.57% | +14.50% | +7.07% |
| 2015 | +10.18% | -0.12% | +10.30% |
| 2016 | +28.42% | +14.45% | +13.96% |
| 2017 | +14.13% | +21.64% | -7.51% |
| 2018 | -4.43% | -5.15% | +0.72% |
| 2019 | +49.25% | +32.31% | +16.93% |
| 2020 | +36.57% | +15.64% | +20.93% |
| 2021 | +26.18% | +31.26% | -5.08% |
| 2022 | -18.33% | -18.99% | +0.66% |
| 2023 | +0.43% | +26.00% | -25.57% |
| 2024 | +12.04% | +25.28% | -13.24% |
| 2025 | +3.97% | +17.88% | -13.91% |
The 57.7% win rate shows up clearly in the table. Most years the portfolio beats SPY. The losses are concentrated in 2001, 2002, 2008, 2017, 2023, 2024, and 2025. The absolute losses in 2001 (-27.87%) and 2002 (-38.44%) are meaningful, but the subsequent 2003-2006 run recaptured them quickly.
Backtest Methodology
| Parameter | Value |
|---|---|
| Strategy | Sector Mean Reversion |
| Signal | Bottom 2 sectors by 12-month trailing EW return |
| Rebalancing | Quarterly (Jan, Apr, Jul, Oct) |
| Weighting | Equal weight within selected sectors |
| Universe | STO (Nasdaq Stockholm), market cap > SEK 1B (~$90M) |
| Period | 2000-2025 (26 years, 104 quarters) |
| Benchmark | SPY (S&P 500 Total Return) |
| Cash rule | Hold cash if fewer than 2 qualifying sectors |
| Transaction costs | Size-tiered model |
| Academic basis | Moskowitz & Grinblatt (1999) |
Limitations
Currency. All returns are in SEK. The S&P 500 benchmark is in USD. SEK/USD movements affect relative performance. The Swedish krona has been more volatile against the dollar than, say, the Swiss franc, and currency effects can materially shift realized returns in any given year.
Down capture of 109.6%. This isn't a defensive strategy. It amplifies losses. The max drawdown of -62.3% is the deepest in the top five exchanges in the study, and 2001-2002 shows what multi-year drawdowns look like with this signal. Investors who can't tolerate extended drawdowns should weigh this against the 57.7% win rate.
Small portfolio. The average of 28.7 stocks per period is concentrated relative to the 80.5 average in Taiwan or much larger universes in the US. Fewer stocks mean more variance per year. Years like 2023 (+0.43%) or 2001 (-27.87%) are partly a function of how few positions the strategy holds.
Basic Materials concentration. 38 of 104 quarters selected Basic Materials. This strategy is effectively a leveraged bet on global commodity and industrial cycles as filtered through the Swedish market. If that cycle changes structurally, the rotation pattern will change with it.
Recent underperformance. From 2022 to 2025, Sweden lagged SPY in three of four years, with 2023 being the worst at -25.57% excess. The 2022 close call (+0.66%) was offset by a weak 2023. The recent period is a reminder that mean reversion signals can go quiet for extended stretches.
Takeaway
Sweden's sector mean reversion delivers 12.63% CAGR over 26 years with the highest win rate of the top five exchanges: 57.7%. The strategy beats the benchmark in more individual years than the alternatives. The cost is the down capture of 109.6% and a max drawdown of -62.3%. This is a return-amplifying strategy, not a defensive one.
The strongest years are post-crash recoveries: 2003 (+43.84%), 2005 (+59.38%), 2009 (+84.14%), and 2019 (+49.25%). The worst years are when the strategy buys into a sector before the bottom is in (2001-2002) or when the selected sectors simply don't recover in the measured period (2023).
Part of a Series
We tested this strategy across 14 exchanges. Other analyses in the series:
- US (NYSE + NASDAQ + AMEX) →
- India (BSE + NSE) →
- Korea (KSC) →
- Taiwan (TAI + TWO) →
- Global comparison →. All 14 exchanges ranked by Sharpe, CAGR, and down capture
References
Moskowitz, T. J., & Grinblatt, M. (1999). Do industries explain momentum? Journal of Finance, 54(4), 1249–1290.
Part of a Series: US | Global | Global | US | UK | Thailand | Taiwan | Taiwan
Run It Yourself
Explore the data behind this analysis on Ceta Research. Query our financial data warehouse with SQL, build custom screens, and run your own backtests across 70,000+ stocks on 20 exchanges.
Data: Ceta Research (FMP financial data warehouse), 2000-2025. Universe: STO (Nasdaq Stockholm). Market cap > SEK 1B (~$90M). Returns in SEK. Benchmark: SPY (USD). Full methodology: METHODOLOGY.md. Past performance doesn't guarantee future results.
