The Viewpoint: Is it time to swap US equities for UK equities?

UK equities seeming cheap compared to shares in other markets is hardly a new argument. In fact, I have made that very argument in favour of the asset class on many occasions.

The argument has made little headway in recent years and in some ways, the UK decline has become self-fulfilling – as the market has lagged, so investors have lost hope or patience, sold and typically reallocated to global investments.

The only cohort taking advantage of the low valuations have been corporates; be it through corporate activity, with UK companies getting acquired by other companies or private equity; or by the companies themselves, using the cash they generate to hoover up large amounts of their own shares and cancel them.

Investors have lost hope or patience, sold and typically reallocated to global investments.

A third category of valuation opportunism has also become apparent recently too – activism – and several UK companies have found activists on their shareholder registers, agitating to get them to take dramatic action to realise the perceived undervaluation of the companies. Examples of this would be BP, Smiths Group and Johnson Matthey.

What has changed then?

Well, as investors have moved to more global investments, what they have really been doing is moving more towards US investments and within that, an ever-narrower list of companies – the much discussed ‘Magnificent Seven’.

I would be reluctant to describe US valuations as a bubble, but I am reminded of a comment made to me by another investor early in my career: “A bubble isn’t just when a certain area of the market gets really expensive, it is when other assets get really cheap because they must be sold to fund reallocations into the bubble.” That does have a certain resonance. Maybe one of the attractions of the UK and European markets are now precisely that – ie they are not the US market.

A bubble isn’t just when a certain area of the market gets really expensive, it is when other assets get really cheap because they must be sold to fund reallocations into the bubble.

To trot out a hackneyed phrase often used in the investment world, “In the short term the market is voting machine, but in the long term it is a weighing machine”. People haven’t been too interested in what the weighing scale says for a while, but with a rather erratic president now in charge of the US, UK and European markets have usefully outperformed the US so far in 2025.

Maybe some are starting to reconsider where they place their investment votes, and the tide of capital flows might be turning. You don’t have to write off the US to see that as a sensible strategy. Buying UK or European assets just spreads the risk profile in what is an increasingly uncertain world.   

For professional investors only.  This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.