Price-to-Tangible-Book in the UK: 9.72% CAGR and +8.50% Alpha Over the FTSE 100
The P/TBV strategy on the London Stock Exchange returned 9.72% annualised over 25 years against the FTSE 100's 1.23%, adding 8.50% per year with a maximum drawdown of -32.35%. It beat the FTSE in 20 out of 25 years.
The P/TBV strategy on the London Stock Exchange returned 9.72% annualised over 25 years against the FTSE 100's 1.23%, adding 8.50% per year. That excess return is the real story here. The FTSE 100 barely kept up with inflation over this period, while the strategy nearly quadrupled its annualised performance. Maximum drawdown of -32.35% is manageable, and the strategy beat the FTSE in 20 out of 25 years.
Contents
Data: FMP financial data warehouse, 2000–2025. Updated March 2026.
The Strategy
Price-to-Tangible-Book strips goodwill and intangibles out of book value before dividing into market cap. The formula: P/TBV = marketCap / (totalStockholdersEquity - goodwill - intangibleAssets). What remains is the value of things you can actually touch: factories, equipment, land, inventory, receivables.
This distinction matters enormously in a market like the UK, where industrials, financials, and energy companies dominate the large-cap index. These businesses carry real asset bases. A bank's book value is largely loans and securities. A manufacturer's book value is machinery and property. Stripping intangibles gives you a cleaner picture of whether you're paying a fair price for the physical business.
Quality filters prevent the strategy from buying cheap-but-broken companies. We require ROE above 8%, ROA above 3%, and operating profit margin above 10%. These thresholds keep the portfolio in profitable businesses with real earnings power, not just cheap balance sheets.
| Parameter | Value |
|---|---|
| Signal | P/TBV ascending (lowest first) |
| Quality filters | ROE > 8%, ROA > 3%, OPM > 10% |
| Rebalance | Annual (July), 45-day filing lag |
| Portfolio size | Top 30, equal weight |
| Minimum stocks | 10 (else cash) |
| Market cap threshold | £500M (~$635M USD) |
| Universe | London Stock Exchange |
| Period | 2000-2025 (25 years) |
| Benchmark | FTSE 100 |
What We Found
The UK never went to cash over 25 years, averaging 20.6 stocks per period. That consistency matters. The strategy always found enough qualifying companies, which reflects how tangible-asset-heavy the LSE universe is relative to US markets where software and pharma companies (heavy on intangibles) dominate.
The down-capture ratio of 54.77% tells you the strategy absorbs just over half the FTSE's losses in bad years. In 2007, the FTSE fell 17.67%. The strategy lost 7.09%, less than half. In 2008, the FTSE dropped 21.97% and the strategy fell 27.19%, the one year where it underperformed during a downturn. The financial crisis hit UK banks as hard as any market, and banks are a substantial part of the low P/TBV universe. That year is the exception, not the rule.
The win rate of 80% is striking. In 20 of 25 years, the strategy beat the FTSE 100. That consistency, combined with the 8.50% annual excess, makes this one of the strongest regional results in the series.
Three years stand out for different reasons. The 2003-2005 stretch produced +30%, +26%, and +33% in consecutive years while the FTSE returned +10%, +18%, and +14%. UK industrials and financials were deep value coming out of the 2001-2002 downturn, and the strategy captured that recovery cleanly. In 2016, the strategy returned +33.57% against the FTSE's +13.11%. The Brexit vote repriced UK assets aggressively lower in GBP terms, creating extreme tangible-book discounts. The portfolio entered a period of genuine undervaluation and recovered sharply within months.
The weak spots are 2011 and 2021. In 2011, the strategy lost 15.93% while the FTSE fell 6.26%. The Eurozone crisis dragged on UK financials, and the strategy's heavy exposure to real-asset sectors worked against it. In 2021, the strategy lost 16.00% against the FTSE's modest +1.54% gain. Post-COVID inflation expectations hurt stocks exposed to tangible-asset intensive sectors as rate expectations shifted. These aren't random noise. They're the same sector exposure that drives outperformance working against the strategy when rate environments flip.
The maximum drawdown of -32.35% is modest for a strategy generating nearly 10% annualised. Beta of 1.208 against the FTSE means the strategy moves slightly more than the index, but alpha of 8.97% more than compensates.
Annual Returns
| Year | Strategy | FTSE 100 | Excess |
|---|---|---|---|
| 2000 | +19.01% | -11.65% | +30.66% |
| 2001 | -2.93% | -20.46% | +17.53% |
| 2002 | -3.17% | -11.87% | +8.70% |
| 2003 | +30.18% | +10.00% | +20.18% |
| 2004 | +25.74% | +17.63% | +8.11% |
| 2005 | +33.12% | +13.50% | +19.61% |
| 2006 | +19.13% | +12.00% | +7.13% |
| 2007 | -7.09% | -17.67% | +10.58% |
| 2008 | -27.19% | -21.97% | -5.22% |
| 2009 | +30.16% | +14.26% | +15.90% |
| 2010 | +32.03% | +24.38% | +7.65% |
| 2011 | -15.93% | -6.26% | -9.67% |
| 2012 | +16.08% | +11.76% | +4.32% |
| 2013 | +31.65% | +8.13% | +23.52% |
| 2014 | -22.13% | -2.73% | -19.40% |
| 2015 | +6.14% | -1.63% | +7.77% |
| 2016 | +33.57% | +13.11% | +20.46% |
| 2017 | +10.62% | +2.31% | +8.31% |
| 2018 | +6.68% | +0.15% | +6.53% |
| 2019 | -7.89% | -17.45% | +9.56% |
| 2020 | +48.90% | +14.15% | +34.75% |
| 2021 | -16.00% | +1.54% | -17.54% |
| 2022 | +18.95% | +4.07% | +14.87% |
| 2023 | +4.11% | +7.89% | -3.78% |
| 2024 | +26.16% | +8.05% | +18.11% |
The Current Screen
The US screen is available at cetaresearch.com/data-explorer?q=z9gpaUlNfi. Exchange-specific queries including LSE can be run directly on the data explorer at cetaresearch.com.
Limitations
Currency effects are real. These returns are calculated in local currency (GBP). A US-based investor would also take on GBP/USD exposure, which adds variance in both directions. Post-Brexit sterling weakness has been a persistent headwind for unhedged foreign investors.
The LSE universe is concentrated in financials and industrials. When those sectors face systemic stress, as in 2008 and 2011, the strategy has no refuge. The quality filters help but don't fully insulate against sector-level crises.
The market cap threshold of £500M cuts out small caps entirely. There's evidence that the P/TBV premium is stronger in smaller stocks, so this threshold may be leaving some of the factor's historical return on the table in exchange for liquidity and tradability.
Part of a Series
This post is part of a multi-exchange series on the Price-to-Tangible-Book strategy. The US flagship backtest, including full methodology and the complete global results summary, is at ptbv-strategy-us-backtest.
Data: Ceta Research (FMP financial data warehouse), 2000-2025. Full methodology: backtests/METHODOLOGY.md
