For years, UK equities have watched enviously as their US cousins partied on without them. But has the music finally stopped across the pondโand is it the UKโs turn to shine? In the following analysis, Sid Chand Lall, manager of the IFSL Marlborough Multi Cap Income Fund, makes the case for UK stocksโ long-overdue comeback, and shares five reasons why he believes it might just be time to board the train before it leaves the station.
The opening scene of Woody Allenโs Stardust Memories shows the main character, Sandy Bates, on a stationary train full of taciturn, downcast, blank-faced passengers. He glumly glances at a carriage on an adjacent track and realises its occupants, by jarring contrast, are having the time of their lives.
Bates accosts a conductor, claims to have boarded the wrong service and pleads to be allowed to disembark. His protests go unheeded, and he can only catch a last glimpse of the frivolity โ so close yet agonisingly out of reach โ as the other group, still laughing and carousing, disappears from view.
Something akin to this celebrated vignette has defined the relationship between UK equities and their US counterparts for several years. The former have seemed stuck on the first train, solemnly wondering why they are unable to join the fray, while the latter have been running wild on the second, cavorting to their heartsโ content.
Yet the picture has become rather different of late. UK equities are no longer sitting in stupefied silence and gazing enviously through the windows. The volatility triggered by President Trumpโs trade policies has reminded investors that big-name tech titans and other mega-cap Statesiders do not represent the only party in town.
Of course, this is not to imply US stocks have been totally derailed. Relatively speaking, though, they have at least hit the buffers โ as a result of which UK companies are gaining the sort of attention they have long deserved.
A key question for many investors now is whether this will prove a lasting shift or another false dawn. After all, those of us who specialise in UK markets have been championing their return to the spotlight for longer than we might care to remember.
So are we really back on track? Here are five encouraging signals that suggest the line could be clear at last.
- A boost for domestically focused companies
The new US-UK deal on tariffs may limit the damage caused by Trumpโs confrontational stance on global trade, but the situation is still negative when compared to the previous status quo. This means now could be an excellent time to explore opportunities among the UKโs non-exporters.
Take food-and-drink distributor Kitwave. It delivers a range of products to wholesale, retail and food-service customers across the country. With the fallout from โLiberation Dayโ highlighting the attractions of domestically focused businesses, the companyโs share price rose by more than 20% in April.
- Solid results and genuine optimism
Even before Trumpโs bombshell announcement in the White Houseโs Rose Garden on April 2, the broader outlook for UK equities steadily grew brighter during the first months of 2025. After a difficult start to the year, rather than moderating their guidance, many companies have been posting surprisingly strong results and positive forecasts.
We have seen good news from our holdings across various sectors and industries, including publishing (Bloomsbury), construction and infrastructure (Morgan Sindall), home improvement (Dunelm), retail (Next) and technology (Alfa Financial Software). This is not merely the stuff of recovery: it is an indication that the general level of optimism is unusually high.
- The herd is getting wise
Many UK equities have been significantly undervalued for some time, most obviously in relation to US stocks. In our opinion, some have been remarkably inexpensive. Now, finally, the gap is starting to narrow.
One of the greatest joys of investing stems from recognising a businessโs long-term potential before the herd acknowledges as much. It is always nice to โget in on the groundโ. There is still plenty of scope to do so, even though โpeak cheapnessโ is probably already behind us, but it might not be wise to wait too long โ particularly with the USโs lustre fading further in light of mounting fears over the governmentโs ability to pay back its debt and sidestep recession[1].
- Income still has a major part to play
As well as re-emphasising the importance of diversification, market upheaval has re-underlined the appeal of income from dividends. This is a consideration that really comes to the fore in the face of falling interest rates โ a race in which the UK has an edge over the US at present.
Collectively, UK equity income funds have performed well so far in 2025, with an average return of nearly 5% between January 1 and May 13[2]. While a lot of the performance to date has come from larger companies, smaller businesses are increasingly likely to benefit as inflows rise โ a welcome development for a fund like ours, which invests across the market-cap spectrum and aims to avoid the heavy dividend concentration that characterises the UK equity arena.
- Even the US is paying attention
Crucially, the recent turnaround has not gone unnoticed in the US. Speaking in late April, Larry Fink, co-founder and CEO of BlackRock, said the worldโs biggest asset manager was busily acquiring billions of poundsโ worth of UK assets โacross the boardโ[3].
โI have more confidence in the UK economy today than I did a year ago,โ Fink declared. Is it too fanciful to imagine him staring forlornly at our carriage, desperate to participate in our journey? Conductor, stamp this gentlemanโs ticket with all speed. Step aboard, Larry, and enjoy the ride.
Sid Chand Lall is manager of the IFSL Marlborough Multi Cap Income Fund.
[1] See, for example, BBC News: โUS loses last perfect credit rating amid rising debtโ, May 16 2025 โ https://www.bbc.co.uk/news/articles/c4ge0xk4ld1o.
[2] See, for example, FundCalibre: โWhat you need to know about the equity income landscapeโ, May 13 2025 โ https://www.fundcalibre.com/what-you-need-to-know-about-the-equity-income-landscape.
[3] See, for example, Reuters: โBlackRock CEO boosts holding in โundervaluedโ UK assetsโ, April 24 2025 โ https://www.reuters.com/business/finance/blackrock-ceo-buying-undervalued-uk-assets-times-reports-2025-04-24/