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-month 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%