Are UK stocks undervalued?
UK stocks are some of the cheapest in the world at the moment. Is this an opportunity to back British?
UK stocks are still undervalued compared to international peers, but that might create enticing opportunities for value-focused investors.
The FTSE 100, an index of 100 large cap stocks (and some investment trusts) listed in London, fell 4.9% between 27 February, when it registered its highest-ever close of 10,911, and 8 June.
For UK stock investors, the decline is a disappointing reversal with the index having celebrated its best year since 2009 in 2025.
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UK stocks had been trading at all-time highs prior to the Iran war’s outbreak. The inflationary shock that has resulted from this as well as persistent economic weakness has weighed on UK stocks, particularly at the smaller end of the market cap spectrum.
“Some of the challenges currently facing the UK economy will show up in different ways in different parts of the stock market,” said Tom Stevenson, investment director at Fidelity International.
“The FTSE 100 is relatively resilient during market corrections thanks to the defensive bias of its constituents and its more international focus,” said Stevenson, whereas “the FTSE 250, by contrast, is more exposed. It is more cyclical, weighted to sectors like consumer discretionary and housebuilders. It is also more domestically focused.”
Are UK stocks underrated – and if so, how can you gain exposure?
Are UK stocks undervalued?
UK stocks have been persistently trading at low values compared to international alternatives.
Analysis from Fidelity International found that the UK is one of the most undervalued of major markets based on a variety of metrics, while the US is the most expensive. UK stocks trade at, on average, around 13 times their expected 2026 earnings and 1.5 times their expected 2026 sales, compared to 22 times earnings and 3.5 times sales for US stocks.
“The UK market remains undervalued, certainly against the US,” Eric Burns, lead fund manager at asset manager Sanford DeLand, told MoneyWeek.
The relative undervaluation isn’t as extreme as it was 18 months ago, he added, largely thanks to the strong performance of UK stocks last year.
“However, when you look at what drove the market in 2025 it was quite narrowly-based, actually,” he said. “Things like defence did well, banks and resources did well.”
But in other parts of the market, the relative undervaluation persisted – and has even increased since.
“Parts of the market got completely left behind in that re-rating in 2025… that’s where I feel the performance is going to come from when we get through this holding pattern with the market that we’re seeing at the moment,” said Burns.
Could UK stocks rise in future?
The question is largely what might catalyse some sort of revival for UK stocks.
“If there is some resolution [to the Iran conflict], I think that will be the catalyst for bond yields to move a bit lower again, and for some of the momentum that we ended 2025 with to be picked up,” said Burns.
But some of the economic headwinds that the UK currently faces could be more enduring.
“In the short term it is hard to see a material re-rating of UK stocks thanks to the persistent productivity shortfall and political uncertainty,” said Stevenson. “But in the longer term the UK is home to many good companies, which are available at undemanding valuations.”
How to invest in UK stocks
To invest in UK stocks, you can either buy them directly, or choose funds or investment trusts that offer exposure to the market.
Burns picked out London Stock Exchange Group (LON:LSEG) (LSEG) and RELX (LON:REL) (formerly Reed Elsevier) as examples of British stocks that have been harshly sold off thanks to a misplaced perception that their business models are susceptible to disruption from artificial intelligence.
“They’ve got a hell of a lot of data,” said Burns. “The market is giving them no credit for that – quite the opposite… I think in three to five years’ time those businesses are going to look like fantastic investments.”
Tracker funds can give you exposure either to the whole UK market, or to specific indices. One option for the entire market is the Vanguard FTSE U.K. All Share Index Unit Trust; this tracks the FTSE All-Share Index which comprises more than 600 large-, mid- and small-cap UK stocks.
A FTSE 100 tracker like the HSBC FTSE 100 UCITS ETF (LON:HUKX) would be ideal for passive large cap exposure, while one tracking the FTSE 250, such as Vanguard’s FTSE 250 UCITS ETF (LON:VMIG), would do the same for mid-caps.
For passive small cap exposure, you could try the iShares MSCI UK Small Cap UCITS ETF (LON:CUKS).
If you prefer an active strategy, Artemis smartGARP UK Equity has performed strongly over the five years to 30 April, returning 124% during that time.
Investment trusts can also offer active exposure to UK stocks: Fidelity Special Values (LON:FSV) invests in unloved UK companies of all sizes and gained 62% in the five years to 30 April, while Rockwood Strategic (LON:RKW) targets UK small cap stocks in particular and returned 105% in the five years to 31 March.
