Investing in UK stocks: locating attractive discount deals in the British market
UK Equities Outperform US Peers in 2025
In a surprising turn of events, UK equities have outshone their US counterparts in the first half of 2025, marking a significant reversal of a decade-long trend of US market dominance. This strong performance can be attributed to substantial returns from the FTSE 100 and FTSE 250 indices.
The FTSE 100, one of Panmure Liberum's favourite plays, has a portfolio of medtech products focused on the surgical and wound-care markets. Advanced Medical Solutions (LSE: AMS) is a key player in this index, delivering impressive returns. Another notable performer is Babcock International (LSE: BAB), a major contractor for the UK's nuclear deterrent, whose shares have more than doubled in value due to increased defence spending commitments.
The FTSE 250, on the other hand, has seen its best quarterly performance since late 2020, with a 11% gain. Genus (LSE: GNS), an animal genetics company, is considered deeply undervalued by Panmure Liberum, with potential growth from genomics selection and gene editing technology.
The outperformance of UK equities has not been driven by earnings growth but by multiple expansion. However, estimates from JPMorgan suggest earnings per share in the FTSE 100 growing by 11.5% in 2025, before falling back to 2.5% in 2026.
Markets are pricing in several rate cuts by the Bank of England over the remainder of the year and into 2026, which could further boost equity returns. The FTSE 100 recently hit an all-time high of 9,000, reflecting investor confidence.
The strong performance of UK equities is also due to high dividend yields and a recovery in certain sectors. Despite some exposure to sectors like energy and healthcare facing headwinds in Q2, overall investor inflows and robust corporate performances have outweighed these negatives.
Comparatively, while UK equities have outperformed US equities, European markets (excluding UK) have reported even stronger returns. The US market's relatively lower return reflects both differing sector performances and currency factors affecting investor flows.
In the UK, the top 30% quality basket has outperformed the bottom 30% by an annualised 9% over the past five years. The list of UK equities that met all the criteria for high-quality accounts includes Associated British Foods, BT Group, DCC, Games Workshop Group, Halma, Mitchells & Butlers, National Grid, J. Sainsbury, SSE, Taylor Wimpey, and Whitbread.
NewRiver REIT (LSE: NRR) is an undervalued recovery play in the property sector, with a portfolio of retail parks and shopping centres well-placed to benefit from the normalization in investors' sentiment and the hunt for high, stable income. CVS Group (LSE: CVSG), a veterinary practices owner, saw a drop in share price after a UK regulatory investigation, but Panmure Liberum sees further upside potential.
4imprint Group (LSE: FOUR) is one of Barclays' top picks in Europe, with a potential upside of 68% to the 5,500p price target and a Barclays "quality" rating of 99%. Berenberg has highlighted Currys (LSE: CURY), OSB Group (LSE: OSB), Paragon Banking (LSE: PAG), Kier Group (LSE: KIE), ITV (LSE: ITV), Mitie (LSE: MTO), Pets at Home (LSE: PETS), and IG Group (LSE: IGG) as attractive mid-cap growth plays.
Since the start of 2025, the FTSE All-Share has delivered a total return of just over 9% in local currency terms and 19% in US dollar terms. This strong run of positive economic surprises among developed markets since January seems to have been boosted by Citi's Economic Surprise Index, which suggests that sentiment around the UK's trade-deal "hat trick" with the US, India, and the EU has reignited investors' sentiment about growth.
A Panmure Liberum report, "Accounting red flags: high-quality stocks lead", was released in July 2025, focusing on identifying high-quality stocks and enhancing returns through a framework focusing on accounting quality, audit risk, and governance oversight. This report underscores the importance of quality stocks in a volatile market.
In conclusion, the UK's equity market has benefited from strong first-half gains, driven by high dividend yields and mid-cap recovery, resulting in better performance than the US equities in 2025 to date. However, regional variations in Europe show even higher returns in some other markets.
- The strong performance of UK equities in 2025 can be credited to high dividend yields, a recovery in certain sectors, and various investment trusts such as NewRiver REIT, which is positioned in the property sector for high, stable income.
- The FTSE All-Share index has exhibited impressive growth, delivering a total return of 19% in US dollar terms since the start of 2025, partly due to positive economic surprises stemming from trade deals with the US, India, and the EU.
- In the realm of personal finance, investors should consider purchasing bonds and investing in stocks from high-quality companies such as 4imprint Group, as highlighted by Barclays, with a potential upside of 68% to the 5,500p price target.
- Although the UK's pension funds may face challenges due to the current low-interest-rate environment, it's crucial for individuals to contribute regularly to their pensions for a comfortable retirement, considering that market fluctuations will always be a part of investing.
- As tariffs involving the UK, US, India, and the EU continue to unfold, deliberate monitoring of investing portfolios will be essential to maximize returns, as the outlook for each region can vary significantly.
