If we averaged the return over large, medium and small companies, the best factor was the price-to-book ratio, generating an average compound annual return of 10.92% compared with 2.25% for the market over the period. The second best average factor was the 12-month free cash flow yield that generated a compound annual return of 10,87%.

For small companies the best single factor was the 6-month price index which generated a compound annual return of 11.91%. The second best factor was the 12-month price index, generating a return of 10.32%.

For medium-sized companies, the best factor was price-to-book value, which generated an astounding compound return of 14.36% over the period. Second was the five-year average free cash flow, generating a compound of 12,83%.

For large companies the best factor was free cash flow yield, leading to compound growth of 10.81%, with earnings yield a close second with a compound return of 10.64%.

Interesting to note is that with small companies, unlike medium and large companies, valuation factors did not lead to the best returns.

Of the two investment strategies we tested, the ERP5 strategy beat the Magic Formula for small (compound 12.95% compared with 7.33%), medium (compound 11.76% compared with 9.05%) and large companies (compound 8.60% compared with 8.39%).