Is it finally time to buy UK stocks?
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Hands up everyone who’s found it hard to be an investor in UK companies over the past decade. Me too. Brexit, a string of new political leaders (with often surprising impacts on the economy) and a fairly lacklustre stock market have all dampened appetite for UK stocks. Making that hurt even more is the fact that tech-powered markets in the US just seem to have gone from strength to strength. The FTSE has had to sit by itself at the school disco while the whole world has jumped at the chance to line dance with the S&P 500.
Will President Trump’s Liberation Day tariffs inadvertently give the crowd a taste for Brit pop, though?
2025: investors are changing their tune
Data from ETF provider Amundi shows large-scale investors were already exiting the US index late in 2024, over fears the AI trade was pushing US valuations to unsteady heights. That money began to flow into European ETFs, rather than the UK which was still wrestling with anaemic growth, unflattering GDP forecasts and low equity valuations.
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ADRs & investing in UK stocks on Robinhood
US tariff volatility: what’s your strategy?
Then came Liberation Day. According to Morningstar, Europe-based US equity ETFs have seen larger net outflows since 2 April than during Q1 2020, which included the Covid-19 crash.
Thanks to the current reprieve on the tariff front, the S&P 500 is now back to within a whisker of where it was immediately before tariff news broke but the uncertainty seed has been sown - what happens after the 90-day pause is lifted? Investors are clearly cautious and have no way of predicting the next chapter in the tariff tale, increasing the need for wider geographical diversification.
Is the UK the next tariff beneficiary?
The case against investing in the UK over the past few years has been its fuddy-duddy make-up (financials, pharmaceuticals, oil, tobacco) rather than the AI-driven tech that has drawn in the market.
It’s been anything but easy to entice new tech onto the UK market and when it does come it’s usually bought out anyway, like Darktrace and Deliveroo. Ironically, that’s been a boon this year, with the lack of toppy tech shares allowing the FTSE 100 to deliver 4% in 2025, yielding around 3.5% too. That’s against the S&P 500’s return of -4.5% and the NASDAQ’s -5.7%.
Discrete calendar year performance
| 2020-21 | 2021-22 | 2022-23 | 2023-24 | 2024-25 | |
| FTSE 100 | 25.2% | 8.3% | 9.3% | 9.8% | 8.6% |
| S&P 500 | 32.8% | 11.5% | -0.6% | 27.0% | 2.8% |
| NASDAQ 100 | 35.9% | 5.6% | 3.2% | 38.0% | 5.1% |
As at 6 May 2025. Source: FE Fundinfo. Total return basis, in local currency. Past performance is not a reliable guide to future results.
The rotation hasn’t hit the UK yet though. Despite the UK’s recent outperformance, global investors withdrew a net £1.2bn from UK equity funds in March, marking the worst calendar quarter on record for UK-focused funds, according to funds network Calastone. April’s -£521m in outflows wasn’t quite as bad but, with the world clearly looking for value away from the US, is the UK the next port in the storm?
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In the UK’s favour is the fact that only 26% of revenues are tied to the US, according to Fidelity. And, with the UK sitting at the low-end of the initial tariff rap sheet, it starts to paint a picture of relative insulation from any upcoming shocks. If the President snaps his fingers and reignites the confusion after 90 days, the UK will of course feel the heat of contagion and through circular trade effects with harder hit partners like the EU. But, for now a 10% tariff is comparatively small and will likely be manageable for a service-based economy with a lighter export base than many European neighbours.
Those defensive sectors that were emblems of a backward index? They could offer stability amid wider weakness in global growth and trade uncertainty. Arguably, this opportunity isn’t baked into UK equity valuations, with Yardeni reporting the UK market currently sits on a forward price-to-earnings (P/E) ratio of 12.2 - equal to that of Emerging Markets and a 40.5% discount to the US (20.5).
With inflation receding, interest rates tipped to decline throughout the rest of the year and UK household savings rates back to pre-Covid levels, contrarian investors will be keeping a close eye on the path for revenues among domestically-oriented businesses in particular.
It’s hard to bet against the US
This doesn’t mean interest in the US market is dead. Far from it. While there may be supply chain changes and work to mitigate tariff hits to business, the world has seen fit to bid up US valuations because it has been a profit powerhouse. And it has.
That said, markets are likely to want to plan for the unexpected and whatever Trump does next. Markets and companies away from the firing line could become increasingly attractive if trade talks between major nations go south, or taxes hit the shining stars of the past decade. If nothing else, the world may take the chance to steer portfolios out of the record concentration in the US market in search of quality and value elsewhere. If that’s the case, the UK could well spark their interest.
Important information
When you invest your capital is at risk. Past performance is not a reliable guide to future gains. Your investments and the income you receive from them may go down as well as up so you may get back less than you invest.
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