UK Equities: Edison Says Investors May Soon Rethink ‘Unloved’ UK Large Caps

UK equities could be poised for a turnaround as investors reassess their underweight positions in the market following months of outflows and geopolitical uncertainty, according to Edison.

In a note titled “Rethinking UK Large Caps,” Edison’s Neil Shah said the UK market has been “the most unloved asset right now,” citing a Bank of America poll that showed a 20% net underweight position in UK equities, a sharp 18% swing from August and the largest shift since 2004. 

That sentiment, Shah noted, has left UK exposure even lower than in the aftermath of the Brexit vote.

Despite global headwinds, the UK100 and Euro Stoxx 50 have each gained about 15% year-to-date, outpacing the S&P 500’s 14.2%, with investors favouring Europe’s lower valuations and higher yields as a margin of safety. 

Shah expects sentiment toward UK equities to improve in the coming quarter, predicting a “relief rally” after the government’s upcoming budget and renewed focus on domestic companies as the US dollar weakens.

Edison identified four themes likely to attract new capital if volatility remains contained: large-cap defensives such as Diageo, Imperial Brands, and GSK; financials like HSBC and Barclays benefiting from steeper yield curves; early cyclicals tied to a recovering UK consumer; and defence stocks including BAE Systems and Rolls-Royce, which are supported by multi-year European rearmament programmes.

“The UK market offers opportunity,” Shah wrote, arguing that stabilising policy and improving fundamentals could prompt investors to “rethink their stance” on British equities.