Why invest in the U.K.? Five takeaways from the 2025 U.K. Focus Conference

Last month, we held the inaugural U.K. Focus Conference, hosted by Adam Miller, Head of U.K. Corporate Broking at RBC Capital Markets, where we invited investors to hear from Charlie Walker, Deputy Chief Executive Officer at the London Stock Exchange Plc; Adam McConkey, Head of Team & Co-Lead Portfolio Manager at Lombard Odier; and Anne Christine Farstad, Equity Portfolio Manager at MFS Investment Management, sharing their insights in a session on the key drivers and opportunities in the U.K.

Hosted by Adam Miller
Published | 4 min read

Key points

  • The US Outperformed the European Markets Again in 2024.
  • Understanding the UK-US Valuation Gap.
  • Reviving the UK Market Through Listing and Pension Reforms.
  • US Listings: Not Always Greener for UK Companies.
  • Outlook for 2025 and Key Desires.

 

The U.K. equity market took center stage in a recent discussion featuring industry leaders exploring key developments from 2024 and trends shaping 2025. Charlie Walker, Deputy Chief Executive Officer at the London Stock Exchange Plc; Adam McConkey, Head of Team & Co-Lead Portfolio Manager at Lombard Odier; and Anne Christine Farstad, Equity Portfolio Manager at MFS Investment Management, shared their insights in a session moderated by Adam Miller, Head of U.K. Corporate Broking at RBC Capital Markets.

With questions around the U.K.’s positioning in global markets, the conversation delved into a critical theme: the gap between perception and reality in U.K. equities.

1. The US Outperformed the European Markets Again in 2024

  • The S&P 500 had an impressive year, rising by 23% though heavily influenced by gains by the 'Mag 7' tech giants. Excluding these seven companies, the S&P 500 gained a more modest 7%
  • In contrast, the UK market has lagged behind, partly due to underlying skepticism and a lack of investor confidence which does not reflect the actual market fundamentals
  • The discussion highlighted a critical underlying issue where UK equities have been overshadowed by their US counterparts, exacerbating the performance gap

2. Understanding the UK-US Valuation Gap

  • The valuation disparity between UK and US markets is significant, with an 8x PE valuation gap, and when including the 'Mag 7', this gap widens to 12x
  • Global momentum investing, where investment decisions are driven by recent performance rather than fundamental value, has favored US markets
  • This approach is tied to US exceptionalism and a higher RoE of around 20% compared to the UK's 15% and Japan's 10%
  • UK markets need to promote their value proposition strategically to bridge this gap and attract global investment

3. Reviving the UK Market Through Listing and Pension Reforms

  • Recent years in the UK have been dominated by major events such as Brexit and the COVID-19 pandemic
  • It's only in the last 18 months that policy changes and regulatory reforms, like new listing rules, have become the focus for the UK
  • Notably, the discussion about the pensions industry is pivotal, given that UK pension allocations to UK assets have plummeted from 48% in 2000 to between 5-10% now
  • The UK has the second-largest pool of long-term capital globally, and the country needs to harness this capital better to support its domestic market and attract new listings

4. US Listings: Not Always Greener for UK Companies

  • There's a prevalent perception that the US market is far superior, leading many UK companies to list in the US
  • However, the data shows a mixed results: 20 of the UK companies that listed in the US in the past 10 years have had varied success with eight trading down by 79% on average, four doing well (like ARM), and eight delisted for diverse reasons, suggesting that the grass is not always greener on the other side
  • The challenge for the UK is to support its companies better through the various growth stages domestically, preventing capital and talent from migrating to the US

5. Outlook for 2025 and Key Desires

  • Corporate confidence in the UK is relatively high, especially with current valuations
  • A key point of discussion was the prevalent public M&A activity in the UK, with companies being acquired at premiums of 75%-100%. This seems to contradict the negative sentiment around UK stocks, suggesting that despite low perceived growth and mature stories, there is significant value there
  • The panel speakers agreed on the need for ongoing pension reforms to foster a more robust equity culture, akin to the 401k system in the US, which could stabilize and grow the market
  • Additionally, the speakers expressed hope for a relative underperformance of momentum strategies, signaling a shift away from the current trend-centric investing towards more fundamentally driven decisions

Overall, the panelists agreed that the UK continues to be a compelling investment across a number of asset classes. If policy reforms through 2025 can continue to reinvigorate interest in the market and bring new companies to investors’ attention, the outlook will continue to be positive.

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Adam Miller
Adam Miller
Head, Corporate Broking

 

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