UK equities are experiencing a ‘renaissance’ as buying interest returns to the market amid low valuations and strong performance, according to Fidelity International.

Fidelity Special Situations Fund and Fidelity Special Values PLC portfolio manager, Alex Wright, said that while UK equities continued to be relatively unloved, their low valuations had rendered them an attractive hunting ground for contrarian value investors.

“If we rewind back to the end of last year, the market consensus overwhelmingly expected US dominance to persist, yet the exact opposite has occurred,” he stated.

“This reversal highlights the benefits of a contrarian investment approach and the importance of exercising caution in areas with excessive optimism and heightened valuations.”

UK equities have outshone many developed market peers in 2025 to date, Wright noted, citing the Fidelity Special Situations’ and Fidelity Special Values’ outperformance of the FTSE All Share Index as evidence of this.

“We are starting to see a renaissance in UK equities, with buying interest returning to the market,” Wright continued.

“Encouragingly, this has filtered down the market cap spectrum where we have a structural bias toward these smaller companies.

“This market broadening beyond large caps highlights the superior valuation opportunities available further down the market capitalisation spectrum.”

Wright argued that while the UK’s unpopularity had prompted questions about what catalyst was needed to improve domestic performance, the firm did not think that anything necessarily needed to change.

“UK shares have performed well over the last five years, a stark difference from 2016-2020 - a trend that has largely gone unnoticed, particularly among domestic investors who continue to withdraw money to allocate overseas,” Wright noted.

“These outflows have characterised the market over the past decade, initially spurred by Brexit-related uncertainty and more recently accelerated by the pursuit of high growth US companies.

“This created a strange situation where investors were withdrawing capital precisely when performance improved.”

While it was acknowledged that there had been some narrowing in regional valuations following the strong year-to-date performance, the UK was found to be continuing to trade at a ‘meaningful discount’ to other regions.

Furthermore, value was being found down the market cap spectrum, as while large caps were trading close to their long-term averages, mid-cap and small-cap companies presented a more pronounced valuation opportunity.

“We believe there are numerous attractive opportunities prevailing in the current market, available at low valuations, and we continue to uncover compelling investment ideas, particularly in periods of high market volatility.” Wright stated.

“We believe that the current market conditions continue to favour our contrarian-value investment style, and this is reflected in our increased exposure to domestically focused businesses, particularly within UK consumption.”

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