Despite being less known than its big brother, the WIG20, the SWIG80 index plays an essential role in the Eastern European market, holding its unique allure that investors need to understand.
The history of the SWIG80 index traces back to April 1994, when it was introduced as an indicator to track the performance of small and medium-sized companies listed on the WSE. The acronym “SWIG” stands for “Small WIG,” underlining the index’s focus on smaller-cap companies. Over the years, the index has come to represent an extensive portfolio of dynamic Polish enterprises often overlooked in favour of larger, more established corporations. Yet, these firms hold the potential for high returns on investments, making SWIG80 a playground for both risk-takers and value-seekers.
Unique in its composition, the SWIG80 comprises the smallest 80 companies in market capitalization, excluding the top 20 large-cap firms. This criterion ensures the index remains dynamic, frequently accommodating new entrants as other firms grow beyond its scope. Therefore, investors can tap into the growth potential of these lesser-known companies, often fuelled by innovation and entrepreneurial vigour.
So, why should investors care about this index? First, its focus on small and medium-sized companies provides a different risk-reward proposition than other indexes concentrating on large-cap companies. Investing in the SWIG80 allows investors to diversify their portfolios and realize greater returns, albeit with a higher risk. Second, the index exposes Poland’s vibrant economy, the sixth largest in the European Union, characterized by robust economic growth and increasing influence in the regional bloc.
The SWIG80’s past performance has displayed a significant growth trajectory, particularly during bull markets. For instance, during the bullish period from 2005-2007, the index increased by more than 200%, far outperforming its larger counterpart, the WIG20. However, the index is not immune to market downturns like any investment. Following the 2008 financial crisis, the index took a substantial hit in the bear market, losing nearly 70% of its value.
When considering the overall performance of the SWIG80 compared to other countries, it has proven to be a resilient and growth-oriented index. From its inception to 2021, it has yielded an average annual return of 9.2%. The S&P SmallCap 600, a similar index focusing on small-cap companies in the United States, recorded a yearly return of 7.9% over the same period.
The reaction of the SWIG80 in a bull market is typically pronounced due to its focus on growth stocks, which generally exhibit greater sensitivity to positive market sentiment. Conversely, the index tends to suffer larger losses in a bear market, reflecting the higher risk associated with small-cap stocks. However, its dynamic nature allows it to recover swiftly during market upswings, offering potential value for long-term investors.
In conclusion, the SWIG80 index is a dynamic indicator representing a segment of the Polish economy often overlooked by investors. Despite its high volatility, it provides a valuable tool for diversification and potentially high returns. As Poland continues to establish itself as a significant player in the European economy, the SWIG80 offers a unique opportunity to capitalize on the growth of its promising smaller enterprises. Therefore, investors seeking to diversify their portfolios and willing to embrace higher risk for potentially greater returns should seriously consider this vibrant index.