Will 2026 be another year to remember for UK equities?

In a recent update, Alex Wright, Portfolio Manager of Special Values PLC, shared his perspective on the case for UK equities. Discover what’s been driving market trends, explore the outlook for the months ahead, and see how his team is positioning for future opportunities.

Watch Alex Wright’s recent update

Despite the backdrop of global economic and political uncertainty, UK equities have delivered robust performance this year. This marks a continuation of a trend seen over the past five years – one that, somewhat paradoxically, has gone largely unrecognised by domestic investors, who continue to withdraw funds from the home market.

While valuations have picked up from their lows in recent years, they remain attractive relative to other regions – including the US, Europe, Japan and Asia Pacific ex-Japan - both on a forward P/E basis and when adjusting for sectoral differences. Investment opportunities are particularly compelling further down the market-capitalisation spectrum, where smaller and mid-sized companies continue to trade at discounts to their long-term averages.

Encouragingly, buying interest has returned from international investors, helping to support a revival in UK equities. The UK has been an attractive destination, notably for US investors, given the highly international nature of many domestic companies and the relative value on offer. Similarly, M&A activity has continued at pace despite turbulent markets and sharp currency moves, while a record number of UK companies are engaging in share buybacks.

The retrenchment of research coverage and reduced competition in the UK value space have created a fertile hunting ground for active investors, particularly among smaller companies. This contrasts with other corners of the world – such as heavily followed US technology and global stocks, which continue to dominate investor attention. Overall, market sentiment has been overly optimistic and I am cautious on how long it can continue.

We have been finding attractive opportunities in domestically focused businesses – particularly linked to domestic consumption – such as through retail and housing-related stocks. We remain excited by the prospects of our holdings and the deep and attractive investment universe that the UK offers, along with the ability to generate long term performance.