Earnings Growth Consistency on UK Stocks (LSE): 25-Year Backtest

The UK delivered the lowest max drawdown of all 17 exchanges tested: -18.9%. The earnings consistency strategy on the LSE produced a portfolio that, at its worst point from peak to trough, fell less than a fifth as much as the FTSE 100 lost in its worst periods.

Contents

1. Method
2. The Signal
3. The Screen (SQL)
4. What We Found
5. Best max drawdown of all 17 exchanges. Strong alpha vs local market.
6. Annual returns (July-to-July)
7. 2008: The defining year
8. 2000-2006: Early strength
9. 2017 and 2019: Stand-out years
10. 2015-2016: The difficult period
11. Why the UK Works
12. Backtest Methodology
13. Limitations
14. Takeaway
15. Part of a Series

CAGR: 11.65% vs 1.23% for the FTSE 100 price index. +10.42% excess per year. Down capture of -3.1% vs the FTSE 100 — the portfolio gained slightly on average when the local market fell.

Note on the benchmark: FTSE 100 returns here are price index returns (^FTSE from FMP), which don't include dividends. FTSE 100 total return with dividends historically adds 3-4% per year. Against a total-return FTSE 100, the excess would be roughly 6-7% rather than 10%. Both comparisons show clear alpha.

0 cash periods across all 25 years. The LSE consistently had qualifying companies.

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

Method

Universe: LSE-listed stocks with market cap > £300M, actively trading Period: July 2000 to July 2025 (25 annual holding periods) Rebalancing: Annual, each July. Top 30 by ROE, equal weight. Benchmark: FTSE 100 price index (GBP; price return only, does not include dividends) Execution: Next-day close (MOC) Cash rule: Hold cash if fewer than 10 stocks qualify. Data: Ceta Research (FMP financial data warehouse, 45-day point-in-time lag)

The Signal

Earnings streak: Net income grew year-over-year in each of the last three fiscal years. Four data points required. All must be positive.

ROE > 8%: Filters for capital efficiency. UK companies with consistent earnings but low returns on equity are excluded.

D/E < 2.0: Moderate leverage cap. Accommodates companies with manageable debt loads while excluding financially distressed issuers.

Portfolio: top 30 by ROE descending, equal weight.

The Screen (SQL)

WITH
fy_income AS (
    SELECT symbol, netIncome, dateEpoch,
        ROW_NUMBER() OVER (PARTITION BY symbol ORDER BY dateEpoch DESC) AS rn
    FROM income_statement
    WHERE period = 'FY'
      AND netIncome IS NOT NULL
      AND symbol IN (SELECT DISTINCT symbol FROM profile WHERE exchange IN ('LSE'))
),
streak AS (
    SELECT y1.symbol
    FROM fy_income y1
    JOIN fy_income y2 ON y1.symbol = y2.symbol AND y2.rn = 2
    JOIN fy_income y3 ON y1.symbol = y3.symbol AND y3.rn = 3
    JOIN fy_income y4 ON y1.symbol = y4.symbol AND y4.rn = 4
    WHERE y1.rn = 1
      AND y1.netIncome > y2.netIncome
      AND y2.netIncome > y3.netIncome
      AND y3.netIncome > y4.netIncome
      AND y4.netIncome > 0
)
SELECT
    s.symbol,
    p.companyName,
    p.sector,
    ROUND(k.returnOnEquityTTM * 100, 1) AS roe_pct,
    ROUND(f.debtToEquityRatioTTM, 2)    AS debt_to_equity,
    ROUND(k.marketCap / 1e9, 2)         AS market_cap_b
FROM streak s
JOIN key_metrics_ttm k ON s.symbol = k.symbol
JOIN financial_ratios_ttm f ON s.symbol = f.symbol
JOIN profile p ON s.symbol = p.symbol
WHERE k.returnOnEquityTTM > 0.08
  AND f.debtToEquityRatioTTM >= 0
  AND f.debtToEquityRatioTTM < 2.0
  AND k.marketCap > 300000000
  AND p.exchange IN ('LSE')
ORDER BY k.returnOnEquityTTM DESC
LIMIT 30

Run this query on Ceta Research

What We Found

Best max drawdown of all 17 exchanges. Strong alpha vs local market.

The FTSE 100 CAGR of 1.23% is the price-only return of the index over this period. The FTSE 100 is a high-dividend index — total return with dividends reinvested would be 4-5% per year historically. Against total-return FTSE, the excess is roughly 6-7%. Both comparisons show clear and persistent alpha.

Win rate of 88% (22 of 25 years) is the highest of all 17 exchanges tested.

Annual returns (July-to-July)

2008: The defining year

2008 is the clearest illustration of the UK result. While the FTSE 100 fell -22.0% as the financial crisis unfolded, the LSE earnings consistency portfolio returned -2.2%. That's a 20-point gap in the worst market environment in a generation.

The mechanism: UK companies with three consecutive years of earnings growth going into 2008 were concentrated in consumer staples, specialty industrials, healthcare, and mid-cap services businesses. They had demonstrated earnings resilience through the dot-com correction and the mid-2000s expansion. They continued demonstrating it in 2008.

The max drawdown of -19.0% for the entire 25-year period reflects this 2008 resilience. The portfolio never experienced a sustained multi-year drawdown because the earnings filter excluded the companies most exposed to each crisis.

2000-2006: Early strength

The first seven years were strong: - 2000: +12.9% vs FTSE 100 -11.7% (+24.5% excess) - 2005: +37.9% vs +13.5% (best absolute year, UK mid-caps surged) - 2006: +26.3% vs +12.0%

2017 and 2019: Stand-out years

2017: +31.0% vs FTSE 100 +2.3% (+28.7% excess). 2019: +20.5% vs FTSE 100 -17.4% (+37.9% excess). These two years are the largest excess-return years in the UK study. The FTSE 100 struggled in both periods (Brexit uncertainty in 2019 drove the index negative). The earnings-consistent portfolio, focused on domestic mid-cap earners rather than FTSE 100 multinationals, decoupled from the index's Brexit exposure.

2015-2016: The difficult period

The strategy underperformed in 2015 (-10.6% excess) and 2016 (-3.0% excess). These years coincided with the pre-Brexit period and the FTSE 100 actually rising in 2016 on sterling weakness (large international companies in the FTSE 100 benefit when GBP falls). Mid-cap domestic earners, which dominate the consistency portfolio, didn't share in that tailwind.

Why the UK Works

The UK earnings consistency filter selects a different universe than the FTSE 100 benchmark suggests. The FTSE 100 skews toward large international companies: global commodity firms, pharmaceutical multinationals, banking groups. These companies grow earnings episodically, not consistently.

The earnings consistency filter removes them. What remains is a portfolio weighted toward mid-cap domestic services, consumer goods, specialty industrials, and healthcare. These companies grow earnings steadily because their revenue isn't tied to commodity prices, exchange rates, or investment banking activity cycles.

That composition explains the -18.9% max drawdown. The 2008 financial crisis hit large banks and international commodity firms hardest. The earnings consistency portfolio had already excluded those companies.

Backtest Methodology

Limitations

Benchmark dividend gap. FTSE 100 returns here are price-only. FTSE 100 total return (including dividends) historically adds 3-4% per year. Against a total-return FTSE 100, the excess narrows to roughly 6-7% per year. Still strong, but the 10.42% headline excess is partly a benchmark construction difference.

Mid-cap bias. The earnings consistency filter tends to select mid-cap businesses. Large-cap FTSE 100 companies — multinationals, commodity firms, banks — fail the consistency screen more often. The portfolio doesn't represent the FTSE 100's sector composition, which is part of why it outperforms.

Currency effects. Portfolio returns are in GBP. Both the portfolio and FTSE 100 are GBP-denominated, so currency movements don't affect the relative comparison. Cross-currency effects only matter if comparing to a USD benchmark like SPY.

Takeaway

The UK earnings consistency result makes a specific claim: UK companies with proven earnings growth trajectories massively outperform the local FTSE 100. CAGR of 11.65% vs 1.23% for the FTSE 100 price index, +10.42% excess. Win rate of 88%. Max drawdown of -19.0% vs the FTSE 100's deeper losses.

The signal works in the UK for the same reason it works in Canada and the US: earnings consistency filters for durable business models. The FTSE 100 is dominated by commodity firms, banks, and multinationals — companies whose earnings are episodic. The earnings consistency screen excludes them and finds mid-cap domestic businesses that compound steadily.

Part of a Series

• Earnings Growth Consistency: US Results — 11.61% CAGR, flagship study
• Earnings Growth Consistency: Canada Results — best Sharpe, negative down capture
• Earnings Growth Consistency: India Results — best excess return
• Earnings Growth Consistency: Germany Results — European result
• Earnings Growth Consistency: Global Comparison — 17 exchanges

Data: Ceta Research, FMP financial data warehouse. Universe: LSE. Annual rebalance (July), equal weight (top 30 by ROE), 2000-2025. Benchmark: FTSE 100 price index (price return only, does not include dividends).