For much of the past decade, UK equities have been out of favour. Yet beneath the headlines, many UK companies continue to deliver resilient earnings, attract potential buyers and trade at valuations below international peers. David Moss, Fund Manager of CT UK High Income Trust, explains why he believes the market may be overlooking opportunities closer to home.
The UK stock market has faced no shortage of challenges in recent years. Economic uncertainty, rising interest rates and concerns about growth have all contributed to a cautious view of UK equities. Yet despite this backdrop, many UK-listed companies continue to perform well, creating what we believe is an increasingly interesting area for those taking a long-term view to consider.
One of the most notable features of this year’s reporting season has been the resilience of corporate earnings. A number of UK companies have delivered results ahead of expectations, particularly within sectors such as industrials, financials and defence.
However, today’s market is demanding more than simply earnings growth. Greater emphasis is being placed on cash generation, capital discipline and the sustainability of future profits. For those taking a longer-term view, this reinforces the importance of looking beyond short-term share price movements and focusing on companies with durable business models and strong fundamentals.
What is takeover activity telling us?
Perhaps one of the most interesting developments in the UK market has been the continued level of merger and acquisition activity.
Overseas buyers, private equity firms and strategic acquirers have remained willing to acquire UK-listed businesses, often paying significant premiums to prevailing share prices. Takeover activity has remained elevated, even as sentiment towards UK equities has stayed relatively subdued.
This creates an interesting contrast. While many investors continue to favour overseas markets, leading to outflows from UK equity funds, some overseas companies, private equity firms and strategic buyers still see value in selected UK-listed businesses.
While takeover activity alone should never form the basis of an investment decision, it may suggest that parts of the market are valued more attractively than current sentiment would imply.
The growing gap between how the market is valuing many UK companies and what strategic buyers are prepared to pay for them is worth closer attention.
A different market from the US
The strong performance of US technology companies, particularly those linked to artificial intelligence, has understandably attracted significant attention. However, this concentration has also prompted some investors to reassess the importance of diversification.
The UK market offers exposure to a broad range of sectors including financials, industrials, healthcare, energy and consumer businesses. It is also worth remembering that many UK-listed companies generate a significant proportion of their revenues overseas, meaning their fortunes are not solely tied to the domestic economy.
Recent geopolitical events and ongoing inflation concerns have contributed to market volatility, but the UK market has historically demonstrated characteristics that can help provide resilience during periods of uncertainty. Its sector composition differs meaningfully from many international markets, offering exposure to businesses that may respond differently to economic conditions.
Furthermore, many of the concerns surrounding the UK economy are already well understood and reflected in company valuations. While challenges remain, improving earnings and attractive valuations continue to support the investment case for selective UK equity exposure.
An opportunity for those taking a longer-term view
For those willing to take a longer-term view, the combination of relatively low valuations in parts of the market, resilient corporate fundamentals and continued takeover activity presents an interesting backdrop.
At CT UK High Income Trust, our focus is on identifying companies that can provide an attractive level of income while also offering the potential for long-term capital growth. We seek businesses with strong cash generation, durable competitive advantages and the ability to grow shareholder value over time.
We believe the current environment continues to offer opportunities to invest in companies we consider to be high quality, where long-term prospects may not be fully reflected in valuations. While market sentiment can change quickly, those willing to focus on underlying fundamentals may find that today’s UK market offers more opportunities than the headlines suggest.
Investment risks
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.
Issued by Columbia Threadneedle Management Limited and approved for distribution 19/10/2026.
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