Sector Mean Reversion on Swiss Stocks (SIX): 4.62% CAGR, +2.31% vs SMI

Switzerland's sector rotation strategy returned 4.62% annually from 2000 to 2025, in CHF, against the Swiss Market Index's 2.31%. That's +2.31% annual outperformance vs the local benchmark. It has a Sharpe ratio of 0.211, a max drawdown of -59.94%, and up capture of 123.62%.

Contents

1. Method
2. What Is Sector Mean Reversion?
3. What We Found
4. Most Frequently Selected Sectors
5. Run This Screen Yourself
6. Notable Years
7. Full Annual Returns
8. Backtest Methodology
9. Limitations
10. Takeaway
11. Part of a Series
12. References

The SMI comparison is the honest local benchmark. But a global investor should hold both numbers: vs SPY (8.02%), the Swiss strategy at 4.62% CAGR underperforms by -3.40% annually. A global investor would have done better simply holding SPY over this period.

We tested sector mean reversion on 14 exchanges. Switzerland beats its local index, but it remains one of the weaker performers in the global study. This post covers what the data shows and why Switzerland's market structure limits the strategy's ceiling.

Data: FMP financial data warehouse, 2000–2025. Updated March 2026.

Method

Data source: Ceta Research (FMP financial data warehouse) Universe: SIX (Swiss Exchange), market cap > CHF 500M 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: Swiss Market Index (^SSMI) 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 Is Sector Mean Reversion?

The idea is simple: sectors that underperform for 12 months are more likely to recover over the next quarter than sectors that just had a strong year. You buy the bottom 2 sectors by trailing return, hold for a quarter, rebalance, repeat.

It works when underperformance is temporary. A sector gets hit by sentiment, a macro headwind, or an earnings miss. The fundamentals are intact, prices overshoot, and capital rotates back in. That's the trade.

It doesn't work when underperformance is structural. A sector is down because the underlying businesses are deteriorating. There's no snap-back because there's no temporary mispricing to correct.

Switzerland's market is mostly the second case. The strategy still outperforms the SMI because the SMI itself has grown slowly. But the absolute return is low, and the gap to a global benchmark is wide.

What We Found

SIX has an up capture of 123.62% vs the SMI. In good markets, the portfolio captures more than a franc of every franc the SMI gains. The down capture of 100.18% is almost exactly neutral: the strategy falls in line with the SMI during bad markets. That asymmetry, capturing more on the upside without worse downside, is what generates the +2.31% annual edge.

Global context: The SMI has returned 2.31% annually over 26 years. Beating it by +2.31% to reach 4.62% CAGR is a real local edge. But vs SPY (8.02%), the strategy underperforms by -3.40% annually. A global investor would have done better simply holding SPY over this period.

A CHF 10,000 investment in January 2000 grew to CHF 32,363 by end of 2025. That's meaningfully better than the SMI, but well below what SPY would have delivered.

Most Frequently Selected Sectors

Over 101 invested quarters, these were the sectors that appeared most often as the bottom two by trailing return:

Consumer Cyclical and Healthcare together account for the majority of selection. That's the core of the problem.

Consumer Cyclical on SIX is Swiss luxury goods and premium consumer brands. Think Richemont, Swatch, Straumann. These stocks underperform when global consumer demand slows. When global demand slows, it often stays slow for several quarters before recovering, and the recovery is uneven. Buying into beaten-down luxury goods and watches because they've had a bad 12 months doesn't consistently work.

Healthcare is Novartis, Roche, Alcon, Lonza. Swiss pharma in the bottom 2 sectors typically signals a pipeline setback, patent expiry cycle, or pricing pressure. These are multi-year structural headwinds, not temporary sentiment gaps. The mean reversion signal fires, but the mean it's reverting to is lower than it was before.

Run This Screen Yourself

To see which SIX stocks are currently in the bottom 2 sectors by trailing return, run this on Ceta Research Data Explorer:

WITH sector_returns AS (
  SELECT
    p.sector,
    AVG(
      (s.adjClose - s_lag.adjClose) / NULLIF(s_lag.adjClose, 0)
    ) AS trailing_12m_return,
    COUNT(DISTINCT p.symbol) AS stock_count
  FROM profile p
  JOIN stock_eod s ON p.symbol = s.symbol
    AND s.date = CURRENT_DATE - INTERVAL '1 day'
  JOIN stock_eod s_lag ON p.symbol = s_lag.symbol
    AND s_lag.date = CURRENT_DATE - INTERVAL '366 days'
  WHERE p.exchange IN ('SIX')
    AND p.marketCap > 500000000
    AND p.sector IS NOT NULL
    AND p.isActivelyTrading = true
  GROUP BY p.sector
  HAVING COUNT(DISTINCT p.symbol) >= 3
),
ranked_sectors AS (
  SELECT
    sector,
    trailing_12m_return,
    stock_count,
    RANK() OVER (ORDER BY trailing_12m_return ASC) AS sector_rank
  FROM sector_returns
)
SELECT
  p.symbol,
  p.companyName,
  p.sector,
  p.marketCap,
  rs.trailing_12m_return AS sector_12m_return,
  rs.sector_rank
FROM profile p
JOIN ranked_sectors rs ON p.sector = rs.sector
WHERE rs.sector_rank <= 2
  AND p.exchange IN ('SIX')
  AND p.marketCap > 500000000
  AND p.isActivelyTrading = true
ORDER BY rs.sector_rank, p.marketCap DESC;

Notable Years

2000: +19.87%. The strategy outperformed the SMI by +30.37%. The tech-heavy indices fell sharply while Swiss defensive sectors held. Early outperformance gave the strategy a good start.

2005: +41.34%. The best absolute year in the dataset. +34.17% excess over the SMI as the strategy caught a global industrial cycle upturn. Basic Materials and Consumer Cyclical both recovered from prior underperformance. This is what the strategy looks like when it works.

2018: -26.68%. The worst year in the dataset. The SMI fell only modestly, but the SIX portfolio fell -26.68%. Healthcare (Novartis, Roche) and Consumer Cyclical stocks that had been beaten down in 2017 continued falling through 2018. The signal identified genuine structural weakness and held into it.

2023-2024: Severe consecutive underperformance. The strategy returned +3.52% and +0.09% in those years while SPY returned +26.0% and +25.28%. The SMI itself trailed SPY in both years too, but the gap to the global benchmark was stark. When the benchmark is driven by US tech and AI-adjacent stocks that have no equivalent in Switzerland's market, any sector rotation signal on SIX will lag by design.

Full Annual Returns

The win rate of 54.81% is visible in the table. Switzerland beats the SMI in slightly more than half of all years. The scattered outperformance in 2000, 2003, 2005, 2006, 2009, and 2016 is real, but 2023 and 2024 produced -22.48% and -25.19% excess misses, deep holes that take years to recover.

Backtest Methodology

Limitations

Low SMI baseline. The SMI returned 2.31% annually over 26 years as a price index. Outperforming it by +2.31% is a meaningful local edge, but it's a lower bar than most global benchmarks. A total-return SMI (including dividends) would be higher, and would reduce the strategy's stated excess return.

Currency. All returns are in CHF. The Swiss franc is a safe-haven currency that tends to appreciate during global risk-off periods, which can mechanically reduce CHF returns when the benchmark recovers in USD. The 2009 +51.40% return is partly a function of CHF movements during the crisis recovery.

Mega-cap concentration. Switzerland's market is effectively 3-4 stocks: Nestlé, Novartis, Roche, UBS. Each dominates its sector. When Healthcare is the bottom 2 sector, that mostly means Novartis and Roche had a bad year. These are not temporary dislocations. They're large-cap stocks with analyst coverage measured in the dozens, and when they're down, there's usually a reason.

Structural vs. cyclical underperformance. Mean reversion works on cyclical dislocations. Switzerland's dominant sectors (Healthcare, Consumer Defensive) are fundamentally acyclical. Their underperformance periods tend to reflect patent cycles, pipeline failures, and pricing headwinds, not temporary sentiment swings.

Down capture of 100.18%. The strategy falls in line with the SMI during bad markets. That's different from most other exchanges where the strategy provides at least some downside protection. Combined with -59.94% max drawdown, the risk profile is not attractive in absolute terms.

2023-2024 consecutive underperformance. Two years of -22% and -25% excess vs the SMI are not noise. When the SMI itself lags global benchmarks and the sector rotation signal adds additional underperformance relative to the SMI, you get the kind of multi-year drag that defines the lower end of this global study.

Takeaway

Sector mean reversion on SIX returns 4.62% annually over 26 years, beating the SMI (2.31%) by +2.31% per year. The 54.81% win rate and 123.62% up capture show a genuine local edge. The strategy captures SMI upside at an amplified rate and matches its downside.

The broader context is less flattering. At 4.62% CAGR, Switzerland underperforms SPY (8.02%) by 3.40% annually. A global investor had better alternatives. Switzerland's market is too concentrated in mega-caps with structural, multi-year headwinds for the rotation signal to work at the level seen in Asian or US markets.

The years where Switzerland excels (2005, 2009, 2000) share a pattern: global industrial or financial cycles turned, and the beaten-down CHF sectors caught the wave. Those are real periods where mean reversion works. They're not frequent enough to close the gap to global benchmarks.

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) →
• Sweden (STO) →
• 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.

Data: Ceta Research (FMP financial data warehouse), 2000-2025. Universe: SIX (Swiss Exchange). Market cap > CHF 500M. Returns in CHF. Benchmark: Swiss Market Index (^SSMI). Full methodology: METHODOLOGY.md. Past performance does not guarantee future results.