Retail investors back British with the UK overweight in ISAs

Retail investors back British with the UK overweight in ISAs

Emma Wall, chief investment strategist, Hargreaves Lansdown: “The London Stock Exchange may be a multi-trillion-pound market, but the UK makes up just 3% of the MSCI All Country World Index, the index tracking global listed companies across developed and emerging markets. The US dominates, with 65% of constituents, Japan a trailing second at 4.9%. But, despite our smaller stature on the global stage, the UK punches above its weight when it comes to retail investor popularity. Across HL’s 2 million clients, the UK is by far the most popular investment region, accounting for 35% of the entire platform through either directly held UK shares, or UK equity-focused active and passive funds, investment trusts and ETFs.

This may be because the FTSE 100 offers investors the opportunity to invest in sterling but gain exposure to international revenues – with 75% of FTSE 100 earnings coming from outside of the UK. Investors may also prefer to hold names they know. They choose to be shareholders of retailers where they can analyse footfall as they do their Christmas shopping, energy companies because they want to hedge their rising monthly bills, or banks because have personally received great customer service. The UK has additionally typically been a retail investor friendly market thanks to the historical preference of UK companies choosing to return excess cash to shareholders in the form of dividends. These payouts can help provide additional income in return or help amplify total returns thanks to compounding.

The UK market is not without its challenges. Prior to around a decade ago, UK and US returns moved in closer lockstep and traded on more similar valuations. The FTSE 100 suffered sharper losses in the 2008 global financial crisis but recovered well over the following years until around early 2025 when the S&P 500 took off, leaving UK equities trailing. The different sector weights can explain much of this. While the UK has a market heavy with mining and energy firms, banks and consumer staples, the US has become increasingly dominated by high growth tech companies demanding ever loftier share prices.

But this has left the S&P in a position trading well above historical valuations, and expensive on most technical measure. The UK, by comparison, is valued at around half that of the US calculation*. Within the UK market, there are a few areas in particular that look good value, with telecoms, real estate and consumer companies all trading far below average historical valuations. Much of this can be attributed to a challenging market backdrop; currently the Budget does present uncertainty for businesses, and the economic outlook is not as rosy as across the Pond. But there are also good quality companies, suppressed by poor sentiment. The key is selective stock picking – either your own, or outsourced to a good fund manager.”

*Using cyclically adjusted price earnings ratio to end of October.

18/11/2025