Are UK investors right to back global funds?

The great escape from UK equities

Over the past decade, UK retail investors have comprehensively rejected the UK in favour of global funds. IA statistics show that in May 2016, the UK All Companies sector had £158.1 billion in assets under management (AUM). By 2026, that had fallen to £149.9 billion*, in spite of an increase of 135% in the FTSE 100**. In 2016, the UK All Companies sector was 17.6% of the total AUM of UK retail investors. By 2026, that had fallen to 9.9%***.

For the UK Equity Income and UK Smaller Companies sectors, the problem has been even worse. The UK Equity Income sector has shed around £24 billion in assets over the decade to hit £35 billion. The UK Smaller Companies sector has shrunk from £12.2 billion to £7 billion. That capital has largely ended up in the global sector, which has risen from £84.7 billion to £261.8 billion over the same period. That equates to a move from 9.4% of the total in 2016 to 17.2% in 2026***.

In general, this has been absolutely the right move. International markets, and the US in particular, have delivered far stronger returns. The 135% return of the FTSE 100 (in GBP terms) looks pedestrian compared with the 329.5% return from the S&P 500**. Even the Euro Stoxx 50 has outpaced the UK market with a return of 192.5%**. The MSCI Emerging Markets index is up 171% over the same period**.

Why the US left the UK behind

The key difference has been the technology sector. Julian Bishop, senior portfolio manager at the Brunner Investment Trust, says: “The UK is virtually a tech-free market. There are two big technology companies of international renown based in the UK. These are DeepMind, which is run by Google, and Arm, which is listed in the United States. This is the primary reason the UK has lagged.”

“Looking at companies like Amazon, Apple, Google, they are huge companies, very value-creative, world class, and absolutely massive. They’ve driven a lot of global value creation over the last decade or two. By being in the UK, you have not had exposure to that area.”

However, as every retail investor will know, past performance is not a guide to the future. It is not clear whether or not the anti-home bias that has worked so well for investors will be as successful over the next 10 years.

The UK still has little or no direct technology exposure. Most of this is still to be found in the US, and increasingly, in Asia. Investors who want exposure to the picks and shovels of the AI revolution have no choice but to look globally. This is still an important part of James Thomson’s Rathbone Global Opportunities fund, for example. He says: “We have many AI beneficiaries from GPUs to CPUs, hyperscalers, networking, data centre real estate, grid modernisation, and power infrastructure construction and equipment. Our key stocks for playing AI more directly include Nvidia, Arm, Amphenol and our recent addition CrowdStrike. All are now top 10 holdings.” The UK has no equivalent to these companies.

Is AI still the easy bet?

Nevertheless, both he and Julian express some reservations about the durability of some parts of the AI trade. James says they are avoiding the capacity-shortage stocks that may not provide durable growth, notably among semiconductor names.

Julian points out that many of the winners of the previous technology cycle had monopolistic positions — Apple in high-end smartphones, Google in search, and Meta in social media. The next stage of technology – AI – looks “brutally competitive”. He says: “It’s a completely different industry structure. It’s also very capital intensive. This stage of tech doesn’t look anywhere near as attractive as the last stage of tech.”

Equally, as James points out, it will dent some of the large, successful software businesses. He has been selling down some of the consumer-facing software businesses, such as accounting software developer Intuit, information services companies and private equity where growth rates may be impacted by AI competitive alternatives.

The UK’s hidden advantages

That removes a significant headwind for the UK market – and the UK is significantly cheaper. Julian says: “The multiple that you’re paying today on the UK is far, far lower than it is in the US, and far lower than across most of the tech landscape. The UK is a soberly-valued market. It’s not a sexy market, but it’s got lots of sorts of good businesses that generate lots of cash, have very good governance, and a good dividend culture. Looking forward, it may be very sensible to have some money in the UK.”

Guido Dacie-Lombardo, manager of the WS Montanaro UK Income fund, says: “Despite a strong performance in Q2, our fund’s P/E at a little over 15x remains well below its historic average. We also observe an ongoing disconnect between valuations and what our companies are seeing operationally on the ground, with the clear majority of the fund’s holdings delivering trading updates that were in line or better than expectations during Q2. Expectations remain for double-digit earnings growth, underpinned by an attractive dividend yield.” He points out that this disconnect continues to be recognised by corporates and private equity buyers.

He also says the policy backdrop for small-caps is worth watching. Policymakers increasingly recognise how little of UK savings are in UK assets. The UK is now the only major pension system without a domestic home bias. While existing initiatives, including the Mansion House Accord and the Pension Schemes Act 2026, move in the right direction, changes to the ISA or pension tax regimes could create greater demand for domestic equities. “Should any version of this gain political traction, it would represent a meaningful structural tailwind,” he adds.

Time to rebalance?

No-one would suggest that investors go back to focus exclusively on the UK market. It undoubtedly has its challenges, and sentiment remains poor. However, the shift to global assets has been extreme, and investors may have overlooked some of the positive factors about the UK. Its low valuations should insulate against some of the volatility of the AI trade. Investors don’t need to give up their globe-trotting, but should recognise that the UK has its charms as well.

*Source: Investment Association, fund statistics, May 2016
**Source: Curvo, at 26 July 2026
***Source: Investment Association, fund statistics, May 2016