Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
It’s been a wonderful time to invest in UK shares. The FTSE 100 recently went through the 9,000 level for the first time and has made a new record high on multiple occasions this year.
The 7.2% return between January and June was the best first-half run since 2021, when it went up 8.9%.
Year-to-date, investors would have made a 14.2% total return including dividends from a FTSE 100 tracker fund, excluding charges. That’s an attractive return and we’re only a little over halfway through the year.
| How the UK stock market performance compares to other parts of the world | |
|---|---|
| Market | Total return so far in 2025 |
| Dax (Germany) | 21.9% |
| FTSE 100 (UK) | 14.2% |
| S&P 500 (US) | 8.9% |
| Nikkei 225 (Japan) | 4.8% |
| CSI 300 (China) | 4.7% |
Source: AJ Bell, ShareScope. Data to 24 Jul 2025
It’s not just larger UK-listed companies doing well. The 11% return between April and June was the best quarter for the mid-cap FTSE 250 index since the final three months of 2020 when it advanced 18.3%.
Here are potential reasons why UK shares are enjoying their moment in the sun.
Right type of companies to appeal in an uncertain environment
The FTSE 100 is full of the type of stocks that appeal to investors when there is uncertainty in the world. Investors seek companies with defensive qualities and the UK market has them in spades.
Industries including tobacco, utilities and telecoms typically have steady earnings. They provide services which consumers and businesses need, and certain companies fall under the category of non-discretionary spending. We all have to pay energy and phone bills every month.
The UK stock market has a wealth of defence contractors which have attracted investor interest against a backdrop of increased government spending on areas like cybersecurity and military forces.
| Best performing FTSE 100 stock so far in 2025 | |
|---|---|
| Company | Total return |
| Fresnillo | 139.0% |
| Babcock | 110.0% |
| Rolls-Royce | 74.7% |
| Airtel Africa | 72.3% |
| Endeavour Mining | 63.3% |
Source: AJ Bell, ShareScope. Data to 24 Jul 2025
A wide range of banks and insurers have been on investors’ shopping lists thanks to generous dividends. While share prices in these sectors can move up and down regularly, investors put a premium on dividends when everything is looking bleak in the world, such as an economic slowdown or a fragile jobs market. They cherish dividends because they can provide a steady stream of cash to fill people’s pockets.
Gold is often popular with investors during periods of uncertainty such as heightened geopolitical tensions. The price hit a new record higher earlier this year and that has created a tailwind for precious metal miners, including Fresnillo whose shares have more than doubled in value since January.
Benefiting from investors updating their asset allocations
Certain investors believe the US is a much higher-risk investment prospect under Trump and they’ve taken money off the table and reallocated to other parts of the world including the UK. This is a dramatic shift in thinking, given that the US has been a top place to make money for years.
For example, UK investors took £622 million out of North American equity funds in May. That was the first outflow for this category of fund in six months, according to the Investment Association.
Overseas investors are also reappraising the UK after a near-decade of being out of favour. The Brexit vote in 2016 caused foreign investors to lose confidence in the UK as it created uncertainties around trade. Constant leadership changes when the Conservative party was in power until 2024 also made the UK less appealing to overseas investors.
Political stability since last summer’s general election, along with the UK being the first to strike a trade agreement with the US under the Trump administration, have prompted certain overseas investors to think again about the UK’s situation and prospects. Relative to what’s happening in the US, the UK now seems a more stable environment.
| Top performing UK funds so far in 2025 | |
|---|---|
| Fund | Total return |
| SVS Zeus Dynamic Opportunities | 24.4% |
| Ninety One UK Special Situations | 20.0% |
| Artemis SmartGARP UK Equity | 19.9% |
| Artemis UK Select | 18.8% |
| Dimension UK Value | 17.8% |
Source: AJ Bell, FE Fundinfo. Data to 24 Jul 2025. Based on funds available to retail investors across the UK All Companies, UK Equity Income and UK Smaller Companies categories
Dollar weakness has also spurred UK investors to look closer to home. A weaker dollar versus the pound makes US assets less attractive.
For example, since Trump’s inauguration on 20 January, an S&P 500 tracker fund priced in dollars would have generated a 5.7% positive return including dividends and excluding fees, whereas a pound-denominated version would have lost 4.5%.
The UK stock market remains cheap
Valuation is another reason the UK has functioned as a magnet for people switching out of US markets.
American shares are expensive when you look at popular valuation metrics. For example, the S&P 500 index trades on 22.2 times next 12 months’ earnings. Between 2014 and 2020, the index was on a much lower multiple, trading between 14- and 18-times earnings.
In contrast, the FTSE 100 trades on a mere 12.6 times forward earnings.
The UK market has been subject to widespread takeovers in recent years, and this trend remains intact in 2025 as the valuation anomaly continues to attract bidders.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
