With this two-factor backtest we combined the cheapest 20% of companies based on price-to-free cash flow (over the past 12-months) in our investment universe with all the second factors we tested for.

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As you can see the results were also very good, with an average return of just under 470% (median was 488.8%). On average this was the third best two factor strategy we tested.

The best performing strategy was combining a high price-to-free cash flow ratio with the 12-months price index. This led to a total return of 755%. With this strategy the second best performance was not the 6-month price index but buying the lowest price-to-book ratio companies. If you did this, your return over the 12 years would have been just under 714%.

The two-factor strategy with the lowest return was the combination of high free cash flow companies with companies that generated high returns on invested capital. In this case the 12 year return was 199.1%