CONTRIBUTORS
Ben Russon, CFA
Co-Head, UK Equities
Key takeaways:
The UK market’s 2025 rally may prove to be the start of a longer-term rerating, with valuations still low versus global peers.
- UK corporates look healthy with cash generation funding dividends, buybacks and M&A, all supporting shareholder returns.
- UK equities offer diversified, global exposure at a discount, with UK-listed companies generating substantial revenues overseas
UK equities delivered a stunning 25% return in 2025, the UK equity market’s sharp rebound is not a late-cycle flourish – it may be the start of a more durable rerating. That’s the view of Ben Russon, Co-Head UK Equities of ClearBridge, who argues the UK market still combines deep value , reliable income and structural tailwinds still point to further upside.
‘Just because the market’s done 25% doesn’t mean that it’s fully valued or overvalued,’ he says. Even after that rally, the UK remains among the cheapest equity markets on a global basis, and still has the highest dividend yield,’ he notes. In his view, the combination of earnings growth, dividend support and buybacks can still allow for very attractive returns going forward from the UK market – even buying at today’s prices.
For years, the UK has been caricatured as a haven of ‘boring old economy’ stocks, overshadowed by America’s technology titans. Russon believes that narrative has been far too simplistic. ‘It’s basically dividing the world into tech and non-tech,’ he says. Investors, dazzled by the US ‘magnificent seven’, have missed the substance of the UK market.
‘The devil’s always in the detail,’ Russon argues. ‘If you look at the composition of the UK market it’s clear that we’ve got plenty of companies and sectors that are playing into long-term structural trends.’
Those trends include electrification, the build-out of data centres and AI infrastructure, and the transition to net zero. UK-listed miners supply critical commodities such as copper, essential for renewable energy and grid expansion. Utilities are investing heavily in regulated asset bases to modernise electricity and water networks. Industrial firms provide components and services that underpin global capex on data centres and AI.
‘It’s more nuanced than just saying, “Tech good, everything else ex-growth”,’ he says. ‘There are plenty of verticals within the UK market that play into the picks and shovels of these structurally growing industries.’
The case for continued performance is also rooted in diversification. As US equities – and within them, a handful of tech names – have grown to dominate global indices, concentration risk has become harder to ignore. ‘Everyone’s placing all their eggs very much in one basket,’ Russon says. With US tech valuations looking stretched, investors are increasingly looking elsewhere.
The UK, he argues, offers global exposure at a discount price. Crucially, he notes, the UK equity market is more a play on global trends than it is on the UK economy. Many FTSE 100 companies generate the bulk of their revenues overseas, meaning investors can access international earnings streams without paying US-style multiples.
‘History always demonstrates it’s the price you pay that’s a big determinant of future return,’ he says. ‘Buying something that’s cheap, generally speaking, is a good idea.’
The valuation gap is partly structural. Unlike many markets, the UK lacks a strong domestic buyer base. ‘Most equity markets have a natural domestic buyer – whether that’s a sovereign wealth fund or a pension industry with significant allocation to the domestic market,’ Russon explains. In Britain, pension reforms have discouraged UK equity ownership and encouraged bond ownership and international diversification, he notes.
At the same time, the surge in US tech has sucked capital flows towards the US, which has been to the detriment of other jurisdictions. Passive investing and momentum strategies have reinforced that trend, creating a self-fulfilling cycle of neglect.
Yet those headwinds have left behind fertile ground. Corporate balance sheets are robust, enabling generous shareholder returns. Dividend payments, share buybacks and M&A activity are all markers of the UK market’s resurgence, Russon says. Private equity and trade buyers have already been exploiting the discount, particularly among mid- and small-cap names.
Within the index, sector performance has broadened. Banks have benefited from better balance sheets and higher rates. Aerospace and defence stocks have rallied amid geopolitical uncertainty. Miners have been supported by commodity demand. Even utilities – often pigeonholed as low-growth income plays – are expanding asset bases through heavy infrastructure investment.
Further down the market-cap scale, opportunity may be even more pronounced. The FTSE 250 has endured a deep derating and now trades at levels that Russon describes as ‘as cheap versus its own history… as it has been for many years’. In some cases, dividend yields exceed those of the FTSE 100.
A supportive macro backdrop could help unlock that value among companies geared towards property, engineering, retail and other pro-cyclical end markets and sectors, he says. ‘Inflation is easing, interest rates are falling and bond yields are retreating. Despite political noise and sluggish GDP growth, the UK consumer has remained resilient. Sentiment data remains robust and high savings ratios suggest capacity for future spending.’
Income, long a defining feature of the UK market, remains central to the appeal. It is ‘the highest yielding G7 equity market out there,’ Russon notes. Dividends are forecast to grow in mid-single digits, offering built-in inflation protection. ‘You get a growing income stream that will look increasingly attractive relative to base rates as we move forward.’
For Russon, 2025’s rally was proof of concept, not a peak. ‘It’s quite remarkable that the market’s done 25% and yet it’s valuation is still within its historic norm,’ he says.
Rather than marking the end of the opportunity, last year’s 25% may prove to be just the beginning of a multi-year reappraisal.
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