Got UK value?

The UK has often been regarded as a ‘value’ equity market given a sectoral composition which is heavily skewed to traditional or ‘old economy’ sectors such as natural resources, financials, utilities, tobacco and so forth, and a corresponding lack of exciting new growth industries such as Artificial Intelligence or semiconductors.

The value argument has been made more pertinent in recent years as negativity towards the UK, created by issues including Brexit, political uncertainty, cost of living crisis, energy shocks, structural reduction of UK equity holdings by domestic institutions and more, has led to relentless outflows from UK equity funds. The result has left the UK looking cheap on many valuation metrics relative to other major markets.

Despite the above, it often surprises people just how well UK equities have performed in recent years, particularly the very largest companies. For example, in the 5 years to the end of July 2026, the FTSE 100 index has delivered a total return (including reinvested dividends) of c.+85%. Within that return there have been some truly exceptional performances, with the large banks particularly noteworthy. For example, the total returns of HSBC, Barclays, NatWest and Lloyds were +441%, +248%, +361% and +220% respectively. The two oil majors Shell and BP also performed very strongly, delivering +186% and +145%.

At the end of July 2026, those six companies above represented c.52% of the MSCI UK Value Index and go a long way to explaining why that index has performed so strongly recently. Whilst there are still good arguments to suggest valuations remain attractive in many of those companies, given the extent of performance seen in recent years, we think it is more interesting to search for value elsewhere in the UK market.

Our focus in running the VT Tyndall Unconstrained UK Income fund is to actively look for outstanding value opportunities further down the size spectrum, and specifically in the mid-sized companies – which we define as companies between £500m to £5bn market capitalisation. This is one of the areas where the negativity towards the UK has been felt most acutely in recent years and where, in our view, value really does still stand out.

In contrast to the largest companies, the FTSE MID-250 (ex Investment Trusts) Index has delivered a total return of just 22% over the 5 years to the end of July 2026, with many companies seeing negative total returns over the period. Certainly, this area of the market tends to have a higher degree of exposure to the UK domestic economy which, for reasons mentioned above, has had extremely negative sentiment towards it for some time. It is also an area active UK equity managers have historically had significant exposure to and hence has undoubtedly borne the brunt of the relentless outflows seen in recent years.

The chart below, from Barclays Research, highlights how cheap the FTSE 250 Index has become, relative to the FTSE 100, on a forward P/E basis, notwithstanding a modest recovery more recently.

This relative attractiveness has not been lost on everyone, as the recent surge in takeover activity, typically from Private Equity or overseas corporates, demonstrates. The table below, from Bloomberg, shows the scale of deals in the first few months of 2026, with more added recently including high profile names such as EasyJet.

B&M European Value Retail Plc – c.£2.4bn market capitalisation

A recent addition, B&M is one of Europe’s leading variety discount retailers with over 750 stores across the UK. Having previously been a fantastic growth story, the business has suffered several ‘growing pains’ and significant share price weakness amid a major transition of leadership from the Arora brothers who had grown the franchise so successfully. With new management in place for just over a year and stage one of the three stage ‘Back to B&M Basics’ plan almost complete, early signs of improved operating and financial performance are encouraging and, as the plan progresses, we are optimistic of further material progress. We believe the shares are extremely attractively valued today, trading on a P/E of c.11x, a dividend yield of c.5% and a free cash flow yield of c.12%.

Savills Plc – c.£1.8bn market capitalisation

Savills is a global real estate service provider with ambitious growth plans under the recently appointed new CEO. Global real estate markets suffered a severe downturn during 2023 as central banks increased interest rates significantly. Market recovery has been sporadic since and, consequently, transaction volumes remain well below previous peak levels and should provide a meaningful tailwind in due course. Alongside end market recovery, growth plans including the recent acquisition of a global real estate investment bank, Eastdil, should see profits and dividends grow strongly. Savills looks excellent value to us, trading on c.12x P/E, a significant discount to global peers, and a c.4% dividend yield.

MONY Group Plc – c.£1.0bn market capitalisation

MONY’s key asset is the price comparison website (PCW) MoneySuperMarket. Until recently the share price had been weak, driven by fears of Artificial Intelligence disintermediation in the PCW market. We think those fears are misplaced given the regulatory complexities involved in switching products such as insurance and energy. At the same time, MONY have invested heavily in a modern technology platform enabling them to launch new products at pace whilst building an increasingly loyal customer base through the SuperSaveClub, which has nearly 2.4m members and rising. Trading on a P/E of c.11x and a dividend yield of c.6.5%, MONY looks highly attractive to us.

We believe there are many excellent value opportunities available in the UK equity market today, but not necessarily in the traditional areas of focus. We are deliberately fishing further down the market capitalisation spectrum than many others, where current conditions look highly conducive to a healthy catch.