The UK market has been written off — but should it be?

By Juliet Schooling Latter on 10 June 2026 in UK

The narrative around UK equity markets for much of the last decade has been one of struggle. UK companies have had to battle against the problems created by Brexit, Covid, rising taxes and low growth. Unsurprisingly, investors have been unenthused. The UK stock market has seen outflows of $160b billion since the vote to leave the European Union in 2016*.

Outflows since Brexit

Yet this narrative isn’t entirely accurate. The UK has had its success stories. With a 1,000%+ increase in its share price over the past five years, Rolls Royce, for example, could hold its head high with any of the US technology companies**. Many of the UK banks have also made impressive gains. It is worth noting that HSBC has outpaced Alphabet over five years** — and without a $180 billion capital spending programme***.

At the moment, with its low valuations, solid fundamentals and high dividends, much of the UK market has become like the accountant brother of a rock star. It is sensible and worthy, but most investors are still going to plump for the rock star of AI. However, the boring brother may have some appeal in a crisis, and certainly may hold fewer risks.
Being paid to wait

In the UK, the underappreciated areas are particularly unloved. There has been no appetite for companies outside the large-caps, except from trade and private equity buyers. When the FTSE 250 yield flipped above that of the FTSE 100 index earlier this year, it marked a rare moment in history. Since then, the gap has continued to widen: the FTSE 250 ex Investment Trusts index now has a yield of 3.7%, compared with just 3.1% for the FTSE 100. The FTSE Small Cap yield is even higher****.

While outflows from the UK have eased, there has been no obvious groundswell of enthusiasm for UK equities, even after a strong year for the FTSE 100 in 2025. However, with dividends high, investors are paid to wait for a recovery.

Prior to the Iran crisis, the UK small and mid-cap sector appeared to be rallying. These areas took a knock from higher gilt yields, but Victoria spots signs of life returning. She says that these unloved parts of the UK market have done well during recent periods of ‘risk on’ in markets, usually when it appeared that the Iran crisis might be easing: “The market rally saw outperformance for both the quality style factor and small and mid-cap stocks.” She says that some of the quality names in their portfolio have been performing better, pointing out that 14 of the fund’s mid and small-cap holdings bounced by more than 10% in April^.

Diversification benefits of the UK

The UK has a lot to recommend it as a diversifier to the US technology trade. Jeremy says that investors shouldn’t underestimate the “shock-absorbing qualities” of the UK market, with its “profusion of hard assets that have historically stood it in reasonable stead during bouts of global risk aversion.”

It also has dividends as a cushion. Andy Marsh, manager on the Murray Income Trust, points out that the latest earnings season saw many companies lift their dividends per share: “NatWest increased its dividends per share by 48%; Imperial Brands by 27%; 3i by 20%; Next and LSEG by 16% apiece; EasyJet by 14%; and Tesco by 13%.” This helps support the trust’s ongoing dividend growth.

A bit of patriotism in a portfolio could provide some important protection if the AI trade starts to wobble. Expectations are still at rock bottom, and the gloomy narrative may have been overplayed. It may be boring, but it could be a good place to hide if the music stops.

*Source: Morningstar, The Brexit Decade
**Source: Yahoo Finance, as at 8 June 2026
***Source: Reuters, 1 June 2026
****Source: FT Markets Data, 5 June 2026
^Source: fund review, April 2026