UK equities delivered a strong performance in 2025, reinforcing their relevance within diversified global portfolios and offering investors a compelling alternative to increasingly concentrated US equity markets.
The FTSE 100 surpassed the 9,000 mark for the first time since its launch in 1984, recovering from April’s sharp ‘Liberation Day’ sell-off and posting gains across multiple sectors. Financials, healthcare and defence stocks led the advance, supported in part by increased NATO spending commitments. While concerns around the UK consumer and broader economic health persisted – contributing to the FTSE 250 lagging more global peers – the year underlined the resilience and breadth of opportunity within UK equities. Ben Needham, UK Quality Portfolio Manager: “2025 highlighted the enduring relevance of the UK market and reminded investors of the important role it can play within diversified portfolios.”
A renewed focus on the UK was driven by the resurgence of the Value investment style, where returns over the past five years have been particularly strong, even surpassing those of the S&P 500. Although Value, Growth and high-dividend stocks all performed well during the year, Quality equities experienced a de-rating and are now trading below their 10-year median valuation. Anna Farmbrough, UK Quality Portfolio Manager: “With previously discounted cyclicals now more fairly priced and quality compounders having derated, the destination of future leadership is in focus.”
Following more than a decade in which high-quality, franchise businesses benefited from low interest rates and expanding multiples, the environment has shifted materially since 2022. Over the past three years, cyclical companies have re-rated sharply, while Quality stocks have seen valuations compress. Needham continued: “Free-cash-flow valuations for UK Quality stocks and the broader benchmark are virtually at parity. This reset has renewed interest in Quality companies, particularly those with resilient business models and predictable revenues. Moreover, this gives us increased confidence in the outlook for Quality as a style, focusing on those companies with top-line rigidity driven by high retention ratios, high recurring revenue streams and/or staple-like products.”
Recent company visits across the UK have reinforced the competitive strength of many businesses, particularly industrials with dominant market positions and strong balance sheets.
“We remain optimistic about the store of value we see in the portfolio, both in Quality businesses in out-of-favour industries which will recover in time, and in Quality compounders which are in control of their growth,” said Farmbrough.
Despite ongoing domestic headwinds, the UK continues to stand out for investors seeking diversification away from the US. Alessandro Dicorrado, Value Portfolio Manager: “The UK remains an attractive place to invest for those seeking an alternative to the concentrated US trade with its mix of well-run domestic businesses and global champions, both of which are trading at relatively low valuations.” Even after a strong year, UK equities trade at a substantial discount to other major markets, even comparing sectors like-for-like. In addition to attractive entry points, shareholder returns remain a key support, with buybacks accelerating faster in the UK than in other major markets. Dicorrado noted: “UK PLC is taking matters into its own hands!”
While the US market continues to look expensive, the UK offers a broad and diverse opportunity set for bottom-up investors. “We do not construct our portfolios based on any reliance on macro scenarios or mean reversion playing out; instead, we look for the best UK and international ideas on a bottom-up basis that meet our return criteria,” said Dicorrado.
Against an uncertain global backdrop, an active and selective approach to UK equities remains critical.
Quality and Value are complementary active approaches with differentiated drivers of potential return, which can add diversification benefits to investors’ portfolios.