Kicking off Wealth DFM’s deep dive into the prospects for UK equities here on the site today, market experts have been sharing their views with us on valuations, opportunities and what could drive the next phase for UK stocks. Keep checking in with us during the morning for lots more exclusive analysis from other insightful investors who are also answering the question ‘where next for UK equities?’
While global markets, particularly US tech and AI stocks, have dominated investor attention, UK equities are quietly offering compelling opportunities. Relative valuations look attractive, dividend yields remain robust, and segments such as mid and small caps are drawing increasing interest from active managers. For discretionary fund managers and wealth clients, the question is not just whether to allocate to UK equities, but how to do so selectively and strategically.
Against a backdrop of easing inflation, lower interest rates, and households in better financial shape than a year ago, the UK market presents both risks and opportunities. Investors are asking: is now the time to increase exposure? How should we think about potential budget impacts? Are we late to the party, or is the market set for another phase of growth?
To provide insight, we’ve gathered commentary from leading UK equity specialists. Their perspectives highlight the areas where value is emerging, the sectors likely to benefit, and why active management remains critical in capturing opportunities while managing downside risk. For wealth managers looking to position client portfolios with precision, the next chapter in UK equities could be both timely and rewarding as the following insights reveal.
It’s the mid-cap market where JPMorgan Claverhouse Investment Trust’s Anthony Lynch is seeing opportunities as he comments:
“At the moment, we’re finding particularly good value in UK mid-cap stocks which combine premium yields, strong growth potential, and often lower valuations than large caps. Companies like XPS Pensions and Cranswick reflect this shift. Holding a mix of high yielders and names with higher earnings growth potential creates a powerful income and growth engine and helps to underpin Claverhouse’s own income progression.”
“The backdrop for the UK is mixed but improving. Inflation has eased, interest rates have come down, and households are in better shape than a year ago. At the same time, UK shares are still trading at a discount to overseas markets, which gives investors a margin of safety. That combination of stronger foundations and better value compared to global peers suggests there’s still good reason to be optimistic.”
“That said, risks remain. Global uncertainties – from geopolitical tensions to trade and currency shifts – can affect UK-listed companies regardless of where they earn their money. While there may be some uncertainties around the level of growth in the domestic economy, the fact that around 75% of FTSE All Share earnings are generated overseas means that the UK equity market is in fact an attractive way of gaining exposure to global earnings at a discounted valuation.”
“Don’t be put off by the UK economic gloom” says Henry Flockhart, co-manager of the Artemis UK Special Situations Fund, as he shares some of his insights into what’s going on for just some company bosses in the sector saying:
“Another elongated run-up to a UK Budget has hit the share prices of domestic UK equities. Investors caught up in the gloom may find it helpful to see what UK company bosses are doing.
“Are they hanging on a bit to see what the Chancellor will announce – as many retail investors seem to be doing? We don’t see that among the Special Situations companies we focus on. They have a job to do and they’re not prevaricating.
“Take the leadership at Marks & Spencer which, despite the recent cyber-attack and budget uncertainty, has sanctioned a £340m investment to build a 1.2 million sq ft distribution centre in Northamptonshire. This is the largest-ever supply-chain investment from M&S and is part of the management team’s drive to double the size of the Food business.
“In the last quarter Entain has increased its marketing budget for 2025 due to strong sales growth despite tax uncertainty in the budget; Coats has acquired Ortholite; Dunelm has approved further investment into central London; Wickes has accelerated store openings by taking over a handful of old Homebase sites; Hunting has acquired FES, a Northumberland-based oil-and-gas equipment manufacturer ; Man Group has acquired credit manager Bardin Hill; Anglo American has agreed to merge with Teck Resources; and IG Group has acquired the Australian crypto exchange Independent Reserve.
“It’s a good model for investors to follow. Investment builds returns that compound over time. Get the clock ticking! Don’t be put off by UK economic gloom – company bosses haven’t been and they’ve probably got better data than the government these days.”
Sharing their overview on the outlook for UK equities, Ninety One UK Quality PMs, Ben Needham and Anna Farmbrough, are emphatic that whilst there are opportunities, now is the time for active management as they comment:
“The UK equity market has once again proven its relevance within client portfolios, with strong returns post covid offering a welcome alternative to the US mega cap tech trade. Yet beneath the surface, we continue to see clear inefficiencies that, in our view, create fertile ground for active management. After a strong period of performance, investors may well be asking whether they have missed out on the opportunity. We believe that whilst the index has partially re-rated and certain sectors have performed strongly, there are many high-quality businesses within the UK that stand out as attractively valued relative to history and are underpinned by strong fundamentals with diversified revenue streams. We believe this combination sets the stage for the next leg of the UK equity story where patience, discipline and a focus on fundamentals will be rewarded.”
Ken Wotton, lead manager of Strategic Equity Capital (SEC) at Gresham House is also in a positive mood, seeing real opportunities in the smaller cap sector of the UK equity market which he’s thinking looks set for revival as he explains:
“I’ve been managing UK funds since 2007, and the only other time I saw UK small caps this attractively valued was during the depths of the global financial crisis. The main difference is that, back then, everything worldwide sold off. Today, UK small caps remain an outlier; a pocket of deep value relative to global equities.
“Britain is home to world-class companies and talent, yet available at a fraction of the price you’d pay in the US for example. International investors can see the opportunity. According to Schroders, between January and August, US investors alone poured more than $15bn (£11bn) into UK equities – more than into any other European market. Meanwhile, private equity buyers from around the world continue to circle and buy UK-listed businesses.
“The consistent theme is not who’s buying, but the low valuations of what’s being bought. Two key ingredients usually underpin UK small-cap rallies: overseas money starting to flow in, and strong performance from the large-cap end of the market. Both are happening this year. In my view, the stage is set for a revival.
“The fundamentals of the UK market are far stronger than the headlines suggest. Britain is no longer an outlier to the downside in terms of economic growth, consumer balance sheets remain healthy, and our political institutions look positively stable compared to France’s fractured government or America’s fiscal brinkmanship.
“Some worry about the “de-equitisation” of the UK as companies are increasingly bought out or taken private. But this is cyclical. As recently as 2021 we had a bull market with a wave of new listings. The difference today is that valuations are far more attractive.
“Just 6% of UK pension money is invested domestically – far below peers like Australia and Sweden. Even a modest target of 10% by 2030 could be transformational, particularly for UK small caps, where many of the country’s most innovative businesses reside. With initiatives like the Mansion House Reforms, the government appears to be heading in the right direction, but these can go further.”
It’s been a tough few years for UK equities – unloved, undervalued and often overlooked, says Jeremy Smith, Head of UK Equities at Columbia Threadneedle. Yet, as he points out to us below, behind the doom-laden headlines lies a different story.
“Over the past 12 months the FTSE All-Share Index has quietly outperformed the S&P 500, the Nasdaq and even the much-hyped ‘Magnificent Seven’ US tech stocks1. Despite this, UK equities remain deeply discounted. We believe there are multiple tailwinds forming behind UK equities as follows:
- The long-term structural selling by UK pension funds is ending.
- With FTSE 350 companies still cheap relative to other markets, M&A activity is picking up as global buyers spot value.
- Interest rate cuts remain on the table, with the Bank of England having more room to ease than the US Federal Reserve.
- Political stability and fiscal focus on capital spending point to improving fundamentals.
- With the rebalancing of the US exceptionalism trade, the UK stock market – with its capital-intensive bias and culture of delivering a major part of its return via good and growing income – will be a means of diversification
In addition, the valuation gap, international earnings base, and underappreciated innovation mean UK equities offer something rare in global markets today: quality and value. So, although the myths around the UK stock market are persistent, the numbers – and the performance – tell a new story. UK equities aren’t broken; they’re just misunderstood.”
Darius McDermott, managing director, FundCalibre, also points out the attractions in the smaller cap market just now saying:
“As many of the world’s stock markets look expensive, the UK is one which stands out as reasonable. While UK small caps are currently experiencing their longest period of underperformance in years, history tells a different story – over most long-term timeframes, small caps historically outperform their larger counterparts. We therefore believe this part of the market looks especially attractive.
“The FTSE 100 has performed well year-to-date, however this performance has been largely driven by a small subset of stocks like defence companies like BAE and Rolls Royce and banks. If those drivers falter, the index could quickly lose steam. The UK is still fiscally vulnerable and the government’s finances look unsustainable, which will have to come to a head at some point, but these are challenges shared across the developed world, not a uniquely British problem.
“In this environment, active managers have the edge over passive trackers as they can avoid past winners and focus on attractively priced businesses, while also managing downside risks more effectively. For broad UK exposure, we like Jupiter UK Dynamic Equity and Rathbone UK Opportunities. For small caps, Unicorn UK Smaller Companies and WS Amati UK Listed Smaller Companies remain standout choices.
“UK pension funds are structurally underweight their own market compared with global peers, a trend that has hollowed out domestic equity ownership for years. The government is now pushing hard for change, and even a modest reallocation would represent a meaningful new source of demand. After years of neglect, a reversal in pension flows could act as a powerful catalyst for a UK stock market revival.”
Wellington Management’s Thomas Horsey is also seeing ‘compelling value’ in the sector, as he explains with his thoughts on the UK equities landscape at present saying:
“There is renewed interest in UK equities as they currently offer compelling value at today’s prices. The MSCI UK is trading at a record discount to the MSCI US and a circa 20% discount to MSCI Europe ex UK, with almost all UK sectors trading at a discount to their international counterparts. This value gap is not simply because the US has more tech exposure. For long-term investors, that looks more like an opportunity than a trap – and there is an old investing adage that you can have the price or you can have the evidence, but you can’t get both at the same time.
“The UK market is home to world-class companies across multiple sectors, many with limited dependence on the domestic economy. At the right price, global capital will be drawn back. After decades of outflows—from corporate pension schemes and more recently from private client managers moving assets into global funds—these flow headwinds appear to be ending.
“At the same time, M&A activity has surged, with 41 bids for UK-listed companies in the first half of 2025 alone, the highest level in 15 years. Private equity and corporates are taking advantage of deep discounts, providing downside protection for investors in the right stocks.”
Another investment manager in a positive mood is Greg Herbert, head of UK equities and manager of the EdenTree Managed Income fund. Sharing his thinking with us, and highlighting the relative value in UK mid-caps, Greg said:
“Our view is that UK equities are attractively valued both relative to their own history and to other markets. By some measures, such as price/earnings ratios, UK equities are close to the cheapest they have been for over 30 years, relative to the rest of the world. And UK mid caps are even cheaper than large caps, especially more domestically-focused ones.
“This low valuation of UK equities is not without reason, especially relative to the US where earnings growth is consistently higher. However, there is extreme policy uncertainty and unsustainable public debt in the US which makes us very wary about the potential for a market correction there. While the UK would not be immune were that to happen, there are much lower expectations priced into the UK market and you get a much higher dividend yield as well.
“The UK economy has also remained more robust than many realise, with GDP growth likely to be the second highest in the G7 this year, while unemployment remains low by historic standards. Many of these stocks with a domestic focus, in areas like retail and construction, are priced for next to no growth at all.”
Anna Macdonald, CFA, Investment Manager, Aubrey Capital Management is more nuanced, pointing out that while the policy outlook for the UK is clouded:
“It would be wrong to dismiss UK assets altogether. Equities in particular look inexpensive relative to history and peers. Many strong companies have already been taken private or acquired by overseas buyers, but active managers continue to identify mispriced opportunities. For long-term investors willing to accept some volatility, selective UK exposure still has a role. “
