As UK funds reverse their long-running outflows, could it be the turning point that many UK managers have been waiting for?
- December fund flow data from LSEG Lipper showed inflows of £8.11bn for UK funds
- IA data showed a rare inflow into active UK equity funds of £52 million
- Investors appear to be reassessing the appeal of the UK market
The UK stock market has been unpopular with domestic and international investors for almost a decade. This has left it looking cheap on almost any measure – dividend yield, price to earnings, price to book. Yet this has not been enough to lure investors. Frustrated fund managers have wondered what the catalyst might be for a turnaround in sentiment.
This week, it finally looked as if sentiment may be shifting as fund flows turned positive for the first time in years. December fund flow data from LSEG Lipper showed a discernible turnaround, with inflows of £8.11bn (£5.37bn ex money market funds). This wasn’t an isolated example. IA data only goes up until November, but it showed the smallest outflow since May 2025 at -£453 million. Perhaps more encouraging was a rare inflow into active UK equity funds of £52 million.
The IA said: “This stands out against a backdrop of persistent risk-off behaviour and ongoing outflows from global equities, suggesting that investors may be reassessing the UK market’s prospects and reflect a growing recognition among retail investors of the UK’s value proposition.”
Why does the UK market suddenly have some appeal? The astonishing performance of the FTSE 100 in 2025 is undoubtedly a draw, with investors realising that there are gains to be had in their domestic market. The FTSE 100 rose 25.8%, meaningfully ahead of the US market. They may now have the confidence to look further down the market cap spectrum, where there is still plenty of value.
Then there is its role as a foil to the US market. Until recently, investors hadn’t necessarily felt the need to diversify away from the US, but the AI trade is looking increasingly precarious. Even if AI is as revolutionary as expected, it is not clear that the US technology giants will all be beneficiaries and even if they are, investors may be paying too high a price for that assumption. The UK with its old-fashioned energy, mining and financial stocks makes a neat diversifier for US technology exposure.
The final reason may be that the UK feels OK again. The political situation isn’t great, but it is starting to look stable relative to some of its peers. The Chancellor has balanced the books, (albeit in a way that displeased almost everyone) and gilt yields have been edging lower since the start of the year. Nobody is getting excited, but they simply need to be less pessimistic to make a meaningful difference to markets. The fightback may have started.
