Putting UK Equities in perspective 

UK investors now hold less domestic equity than at any point on record, with foreign ownership dominating UK-listed shares. Over £1.9 trillion has exited UK equities since 2000, as pension funds and wealth managers pivot to global markets - particularly the US. 

•  Historic shift: UK ownership of domestic equities fell from 96% in 1981 to 42% in 2022.
• Globalisation trend: Pension funds and wealth managers favour global benchmarks and US growth stocks.
• Undervaluation opportunity: UK equities trade at steep discounts vs US markets, raising questions of a possible turning point.

UK investors hold less UK equities as a proportion of their portfolios than at any point on record, resulting in more than £1.9 trillion being withdrawn from UK-listed companies over the century. 

In July, Chancellor Rachel Reeves pulled back from proposals to restrict the amount savers could put into cash Isas, in the hope that this would be diverted to other assets, not least UK equities. This remains a government objective, however, with a Treasury spokesperson commenting: “Our ambition is to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy.”

Initiatives to promote this include the British Business Bank’s British Growth Partnership, aimed at encouraging more investment from UK pension funds and other institutional investors into the fastest growing and most innovative British companies, and this year’s Mansion House Accord, to encourage UK pension funds to invest more in UK Plc. 

This is no easy task. The trend away from domestic equity investment has been underway for decades. 

According to the most recent ONS figures, in 1981, UK individuals owned 28.2%, ‘other’ UK holdings, such as pension and insurance funds owned 68.25, while foreign ownership was 3.6%. By 2022, those figures were 10.8%, 31.5% and 57.7% respectively (chart 1). 

Prior to 1963, UK individuals owned most UK shares. Of course, those assets were and are far from uniformly distributed. Share ownership, which had been constant at around 7% of the UK adult population, had trebled to 22% by 1988. By 2002, 30% of people had some form of market-based investment, whether shares, mutual funds or investment trusts. However, by 2022, this had shrunk to 18%, according to research. In addition, many people are members of workplace pension schemes, with the 88% (20.8m) of UK eligible employees covered in 2023.

But, despite this coverage, UK individuals and institutions’ ownership of the UK stock market has fallen from 96.4% in 1981 to 42.3% in 2022. Pension schemes’ exposure to equities has been reduced in part by LDI and accountancy and regulatory changes. As a result, UK pension schemes have reportedly dropped their UK equity exposure from about 50% to 4% over the course of this century. 

Even in the pension world, this may not be fully played out. Scottish Widows, a large UK pension provider owned by Lloyds Banking Group, announced in June 2025 it was reducing its allocation to UK equities in the interest of offering a “more globally diversified approach” to capture “more growth opportunities in high-performing international markets”. 

Wealth managers are also following the globalisation trend. The head of manager selection at one large wealth operation told me this was a result of shifting from UK to more global benchmarks, “and this is unlikely to reverse”. 

The UK’s shrinking percental of global indices has further squeezed allocations. For example, in December 2008, the US had a weighting of 44.42%, followed by the Japan at 10.01%, and then the UK at 8.11% in the FTSE All-World index. In July 2025, those weightings were 63.68%, 5.54% and 3.38% respectively.  

It’s worth adding a codicil here, that global indices are not really a reflection of the global economy. China has a weighting of about 2.7%: lower than Nvidia, Microsoft and Apple. The UK still has a weighting greater than Amazon, if not Apple. China’s GDP is about 17-19% of world GDP – the second largest – and has the largest share of global production: at about 30%, nearly double that of the US. So, both at the stock and country level, there is increasing concentration risk within major global indices. Risk should not be reduced to ‘active bets’. 

Do we see a similar exodus with UK mutual fund and ETF investors? We have looked at how UK investors’ allocations between UK, US and global equity funds (summing flows and net assets for these national classifications and their Income variants) have changed over the past two decades.

In 2004, UK investors held £116.96bn in Equity UK and Equity UK Income funds, compared to £18.99bn in their global equivalents, and £14bn in US. UK equities were therefore 78% of the total. In 2024, that figure was 27.3%. The largest change was between 2019 and 2020, when the Covid crisis broke, where UK equity total net assets fell from 53.2% to 43.9%.

That’s reflected in flows to these classifications (chart 3). Between 2004 and July 2025, global funds attracted £102.62bn, US funds £31.65bn, while their UK equivalents have seen outflows of £101.99bn. That is heavily skewed to the period from 2021, where UK funds shed £95.62bn—again, reflected on the jump in relative assets in chart 2.

The UK, which is a value-tilted market, has suffered from the outperformance of tech stocks as equity markets rebounded from the global financial crisis, and investors piled first into the FANGS pre-Covid, then into the Magnificent Seven. This is what has caused the US as a proportion of global indices to balloon. 

Using LSEG Datastream, we illustrate the value-tilt in the UK through the FTSE 350 index (chart 4), where Financials, Consumer Staples, and Industrials make up over half of the index.  Technology has one of the lowest weightings – less than 4% – and has just about managed to double its weight over the past 15 years.  This limited exposure combined with modest growth in weight has contributed to UK investors going global to access large-cap growth stocks.

The Russell 1000 is the leading marketplace for investors seeking growth exposure.  Technology holds the largest weighting, representing more than one-third of the index. Separately, the Magnificent Seven’s combined weight is near an all-time high at 32.4%, having quadrupled its weight over the past decade.  Furthermore, to illustrate the growth nature of these companies, the group’s weight within the Russell 1000 Growth index has reached a record 61.9%.

While UK equity funds have outperformed year-to-date and in 2022, they have underperformed US equity funds over 17 of the past 20 full years, and 12 out of 20 versus global funds (chart 5).  The correlation of US and global returns will have increased along with the former’s weight in global indices.

This outperformance helps explain the valuation premium that US equities command over the rest of the world.  The forward P/E of the Russell 1000 is about 22.5x (~20.2x ex. Mag-7), a level last seen in late 2021 and placing it in the 96th percentile over the past 20 years.  With a forward P/E of 12.7x for the FTSE All Share index, the relative valuation premium of US equities has been rising steadily since 2016, peaking at nearly 2x last year before falling to 1.74x, reflecting UK outperformance year-to-date (Chart 7).  

Although the UK market offers investors a higher dividend yield of 3.3% compared with only 1.2% in US equities, income is just one part of the total return equation.  Ultimately, the trajectory of earnings growth and profitability remain key drivers of equity performance, and this currently favours US markets.  

Earnings expectations are high for US large-cap (growth) when viewed through the lens of the StarMine Intrinsic Value (IV) model, which shows a market-implied 5-year EPS CAGR of 12.0% for the Russell 1000 – well above its forward 5-year EPS CAGR of 8.7% (table 8).  This difference widens even further when looking at Russell 1000 Growth, with a market-implied CAGR of 20.1% vs. a forward EPS CAGR of 11.1%.  Growth expectations are more balanced in US small-caps.  Put simply, excluding small-caps, today’s prices imply investors expect much faster earnings growth than what forward estimates suggest, as the market-implied rate effectively backfills the level of growth needed to justify current valuations.

By contrast, we see the opposite dynamic in the UK, with markets pricing in significantly less growth today than what forward estimates imply, signalling that UK equities may be undervalued relative to their fundamentals.  We infer the same conclusion when looking at the aggregate StarMine Relative Value (RV) model in table 8, which shows an aggregate RV score of 63 for the FTSE 100 compared to a score of 29 for the Russell 1000 (higher scores indicate ‘inexpensive’).  

Looking at the second part of the total return equation, net profit margins for the Russell 1000 are at a record 12.9% compared with 10.4% for the FTSE All Share.  Looking ahead, the Mag-7 are expected to deliver aggregate net profit margins of 26.5% in 2026, alongside revenue and earnings growth forecasts of 12.3% and 15.9% respectively.  The group continues to surpass market expectations, irrespective of the high bar set by analysts.  In the latest earnings season (Q2), the group saw aggregate earnings growth of 27.3% and revenue growth of 15.5%, marking nine consecutive quarters of double-digit growth and underscoring their resilience regardless of the headwinds that come their way.

Are we at a turning point? After all, in the words of Herb Stein, if something can’t go on forever, at some point it will stop. UK equity valuations are relatively attractive, and YTD performance has been relatively good—albeit, in an environment where market leadership changes frequently. While the structural headwinds for increasing UK equity allocation remain, it’s also possible that in a market so heavily sold, initiatives such as the British Growth Partnership and the Mansion House Accord might feed enough capital to companies to support valuations, helping foster a positive feedback loop between performance and flows. 

There are, of course, many “what ifs?” here. When it comes to identifying such a turning point, that ever-irritating question—“are we there yet?” —remains devilishly tricky to answer.