Low valuations and overlooked stocks offer long-term opportunities for Columbia Threadneedle’s UK investment trusts
If the price that you buy equities at determines your future returns, as studies suggest, then the UK stock market is in a good place. That’s because it trades at significant discounts to other stock markets around the world, indicating that the balance of probabilities could be in its favour.
Even before the conflict in Iran started on 28 February, the UK looked cheap relative to other equity markets. At the end of March, however, the FTSE All-Share index traded on a forward price/earnings (P/E) ratio of 13.0, significantly lower than the MSCI World Index’s 18.2. The forward P/E ratio is a widely used valuation benchmark, comparing stock prices to forecasts for company earnings.
Sentiment has been poor in the UK for a long time, which helps to explain the lack of excitement about UK shares, many of which represent high-quality resilient businesses. Indeed, at a time of uncertainty, with questions over whether higher energy prices may stoke inflation, the UK stock market’s leaning towards more traditional businesses may work in its favour.
That’s because these are businesses in ‘old economy’ sectors such as financials, energy or industrials rather than the technology growth stocks that have dominated stock markets in recent years. The latter are less well suited to a world where the 2010s era of super-low interest rates has ended and money costs money. With higher borrowing costs, simple mathematics shows that these growth companies’ future cashflows are worth less when discounted back to the present.
Price is what you pay, value is what you get
With the relatively low valuations of UK equities, a straightforward calculation highlights the common sense of buying when the price is right. This way investing at a relatively inexpensive valuation can provide a better chance of achieving attractive future returns. Earlier in 2026, we looked at dozens of forward P/E ratios on offer over the last 14 years and then considered what the average outcomes were.
This chart illustrates the historical relationship between starting valuations and subsequent long-term returns. In both the US and the UK, higher entry valuations have historically been associated with lower 10-year annualised returns. At current valuations levels, this history suggests that UK equities, which are trading on lower forward price/earnings multiples than the US market, have historically been associated with stronger long-term return outcomes.
A dedicated UK equity investment team
At Columbia Threadneedle, we focus on finding out-of-favour stocks in what is clearly an overlooked market. Our UK equity desk brings together eight portfolio managers and 12 dedicated analysts, providing a depth of experience and resources across the UK market.
As a leading UK equity income manager, it’s in our DNA to be bottom-up stock pickers, contrarian investors. That means we often look for stocks that have significantly underperformed but where the situation has improved. Companies where management is taking action to try to improve profitability.
These are companies that the stock market finds hard to price. They might be middling businesses priced as poor ones, or great businesses priced as middling ones. Right now, we are finding a lot of opportunities like these.
Twin investment trusts, long income growth
This approach underlies our two UK investment trusts, both of which have a focus on income. The difference between them is that the CT UK Capital and Income Investment Trust puts a greater emphasis on capital growth than income, while the CT UK High Income Trust primarily seeks a higher-than-average dividend yield, with the hope of capital appreciation as well.
This plays out in their respective income yields. As of 28 February 2026, the CT UK Capital and Income Investment Trust’s net dividend yield was 3.49%. For comparison, the CT UK High Income Trust’s ordinary shares net dividend yield was 4.6%. Showing the importance of dividends for the respective trusts, the former has grown its dividend for every year since inception in 1992, and the latter every year since 2015.
What’s the outlook for UK equities?
Turning to the UK economy, things are not as bad as the headlines might suggest. By the end of 2025, the UK had been one of the stronger-performing G7 economies on real GDP growth.[1] A few months in 2026, UK consumers and corporates have strong balance sheets, with low debts. From being a very indebted society, UK individuals have been saving heavily in recent years, which may provide the economy greater resilience in the face of any fall out there might be from the conflict in Iran.
Admittedly, the conflict has damaged consumer confidence, and the likelihood of higher inflation has delayed any further declines in UK interest rates. Yet the traditional, old-economy type companies that dominate in the UK are well placed for a world where interest rates are higher and more variable than in the 2010s.
We do not think that the UK will discover some kind of economic miracle but nor do we believe in the excessively gloomy sentiment. Furthermore, our UK investment trust managers are finding plenty of attractive, contrarian opportunities.
In our view, UK stock market valuations looked outstanding at the beginning of 2026 and appear even better today. This gives us faith that the market and our style of investing can present great investment opportunities.
Capital at risk. The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Dividend yields are based on historical distributions and are not a guarantee of future income.
Issued by Columbia Threadneedle Management Limited and approved for distribution 22/04/2026.
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