Key Takeaways
- There are many long-standing cliches associated with the UK stock market, several of which are detrimental to its reputation.
- From valuations and the make-up of the index to perceived US superiority and mistaking the UK economy as a proxy for the equity market, many of these just don’t stand up to scrutiny.
- We debunk six myths in detail and set out why the UK market is more than you might think.
It’s been a tough few years for UK equities – unloved, undervalued and often overlooked. Yet 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.
But making the case for UK equities is not about blind optimism – it’s actually about rebutting tired narratives, as well as exploring several developing tailwinds. So, let’s bust some myths …
Myth 1: Your capital is better off in US equities
You’d be forgiven for thinking US stocks are the only game in town. But over the past year, the FTSE benchmarks are actually outperforming US indices, with UK stalwart businesses like BT, Marks & Spencer and Imperial Brands2 outperforming, for example, Nvidia3.
Yes, the S&P 500 has delivered exceptional returns over the past decade, but it has also become problematically top-heavy. The Magnificent Seven now dominate global indices, with the US accounting for 72% of the MSCI World Index4. Indeed, in the past 10 years those seven stocks accounted for nearly 40% of overall S&P 500 gains in absolute terms. That’s a lot of exposure riding on just a few stocks. The UK overall is much less volatile. It saw no correction at the end of 2022, for example. This diversity is critical as macro volatility rises.
As Warren Buffett said, ‘Markets do badly when they forget companies grow earnings at 7% per annum … any performance better than 7% on a market level is just stealing future performance.’ With the US returning in excess of 12% for the past two years, perhaps it has been stealing future returns. The UK is
still playing the long game.
Myth 2: London listings are inferior
Another common narrative is that serious global companies should list in New York. But the data doesn’t back that up. Over the past decade, only 20 UK companies have listed in the US and raised more than $100 million, compared to more than 200 in London. Of those 20, nine have already delisted and only four are trading above their IPO price5. Indeed, foreign issuers tend to underperform in the US in general: over the past five years, the average after-market US IPO price shows US companies down by 2% while non-US firms are down 31%. In contrast, London IPOs have seen similar or better medium-term returns, all with lower costs and less regulatory risk6.
So, although many firms are still eyeing New York, the reality is more nuanced than the headlines suggest.
Myth 3: Cheap means poor quality
We agree with Buffet on his maxim: ‘Price is what you pay, value is what you get.’7 Indeed, it is our firm belief that for stock markets as a whole, valuation is the clearest predictor of future investment performance. It is empirically rare for expensively valued markets to produce strong returns (Figure 1). There are numerous reasons behind this, but most obviously high valuations imply that investors are already well aware of, and perhaps fully invested in, the market. Yes, markets are driven in the long term by fundamentals such as earnings, cashflow and dividends, but in the shorter term more speculative investor flows often dominate share prices. If companies fail to live up to over-hyped expectations, their over-blown share prices can stagnate or even fall precipitously.
Figure 1: A clear pattern
Source IBES, LSEG Datastream, S&P Global, JP Morgan Asset Management, as of 31 March 2025. Dots represent monthly data points since 1988. Forward P/E ratio is price to 12-month forward earnings, calculated using IBES
earnings estimates.
Myth 4: The FTSE is full of dinosaur stocks
The FTSE’s reputation as a haven for oil majors, miners and banks misses the innovation that is happening across UK markets.
Reforms are also helping channel institutional capital into growth businesses to ensure these firms are given the time and support to develop as they should. The story of UK innovation is evolving.
Myth 5: The UK stock market is the same as the UK economy
There is a clear link in investors’ minds between a domestic economy and the success or failure of that country’s stock market. If an economy grows, surely the stock market will too? The US over the past century bears witness to that.
But there are also many reasons to believe that the performance of stock markets in general, and certainly many individual companies, can be unrelated to their domestic economies. Most obviously – and this is particularly true of the UK stock market – although companies may be listed domestically, many will earn substantial amounts of revenue overseas. Indeed, of the revenue generated by those companies that are part of the UK’s FTSE AllShare Index, latest figures show that just a quarter (25.3%) comes from the UK. This is almost exactly the same as the amount of revenue generated by those UK-listed companies in North America (25.6%). So, for the UK stock market index, revenues generated in the US are as important as those generated in the UK, and international revenue is almost three times more important than domestic revenue (Figure 2). Emphatically, the UK stock market is in no way a proxy for the UK economy.
Figure 2: An international flavour
Source: FactSet Geographic Revenue Exposure (GeoRev) data, as of 31 March 2025
The point of labouring the lack of correlation between the UK stock market and economy is that there is plenty of anecdotal evidence that some investors and asset allocators have lost confidence in the UK economy and been throwing in the towel on UK stocks. And while the domestic economy has struggled, that
isn’t the case for UK equities.
Myth 6: UK dividends never recovered from Covid
Far from being cut post-Covid, dividends have rebounded strongly. The UK’s capital-return culture is alive and well.
The bottom line
We believe there are multiple tailwinds forming behind UK equities:
- 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
