Five reasons to believe in UK equities

UK equities have become unfashionable in recent years. But, here at Franklin Templeton, we’re confident that there are plenty of reasons to believe. It’s time to change the narrative for the real story on UK equities.

reason 1

Compelling valuations - UK equities are relatively cheap

The chart below shows that the UK market is cheap on a price to earnings basis relative to the rest of the world. The price to earnings ratio represents how much investors are willing to pay relative to current earnings.

Not since the depths of the global financial crisis (more than 15 years ago) have UK equities been cheaper on a relative basis.

The UK market also looks cheap on an historical basis with a price earnings ratio currently around 11. Again, the last time markets were so cheap was during the global financial crisis and, before that, way back in the early 90s.

Source: Morningstar as at 31 July 2025.

REASON 2

The UK - innovation nation

While the UK has the reliability and regulatory framework of an ‘old economy’, its equity markets also play host to some world class innovators:

5th

The UK ranks 5^th in the Global Innovation Index 2024¹ rankings ahead of countries like Germany and Japan.

£50 billion

Expenditure on research and development (R&D) performed by UK businesses was £50 billion in 2023².

18,953

The number of patent applications in the UK in 2024.³

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reason 3

UK Macro – potential for domestic growth?

The UK economy is on the brink of a consumer-driven revival. Record household savings, rising real wages, and widely anticipated rate cuts are fuelling optimism. Recent signals from the Bank of England suggest lower rates could be on the horizon, especially as job data softens. Challenges such as geopolitical risk, government fiscal constraints, and slightly elevated inflation persist but the outlook is increasingly bright.

Source: Office for National Statistics, Martin Currie as at 23/12/2024

reason 4

Income outcome – why UK equities for income

Rate cuts that started in 2024 are anticipated to continue well into 2026. Income investors seeking for a reliable yield should consider UK equities - a natural hunting ground for a resilient and growing income stream. Why?

An attractive yield premium versus other developed markets

A significant portion of the UK market can be found in dividend paying sectors

The dominance of income in UK returns is unique

reason 5

UK equities: industry leaders with global focus

While the UK equity market is not immune to domestic issues, the companies in the UK’s main large cap index, the FTSE 100, derive an incredible 74% of their revenues from overseas.

Even the companies in the FTSE 250 index (which contains medium-sized UK companies) make around 51% of their sales in foreign markets. As hopes for a turnaround in the global economy improve with falling wholesale energy prices and normalised levels of inflation, the UK offers a unique exposure.

Source: Morningstar as at 30/06/2025.

Our UK equity funds

The UK equity team, previously part of Martin Currie, has now formally aligned under ClearBridge Investments, as of the 30 September 2025.

This new structure will optimise the combined strengths of the UK equity team and ClearBridge Investments. The team will maintain their investment autonomy and will have access to broader resources to benefit clients.

Our flagship fund is a low-cost solution and has consistently generated more income than the FTSE All Share index.

This is a high conviction portfolio of quality UK mid cap stocks, which provides a prudent exposure to the many high growth opportunities within the FTSE 250 index.

The Fund aims to grow in value by more than the FTSE All-Share Index by generating a growing level of income, together with investment growth over a three to five-year period after all fees and costs are deducted.

The Fund aims to grow in value by more than the Numis Smaller Companies ex- Investment Trusts Index over a three to five-year period after all fees and costs are deducted.

Insights

22 OCTOBER 2025

Where next for UK equities?

ClearBridge Investments: UK equities are delivering real value, offering global market access at a discount through sectors like banking, healthcare, mining, and energy. With strong dividends, growing share buybacks, and resilient fundamentals, the UK remains a smart choice for long-term investment.

3 SEPTEMBER 2025

UK Equities: The tortoise and the hare

Many investors have overlooked UK stocks, but they have recently been delivering strong performance. This article delves into the UK equity market’s strengths and other factors that may help it catch up to more popular equity markets such as the United States.

2 JULY 2025

UK Equities: Labour's first year in power

Franklin Templeton Institute’s Michael Browne, asks a fundamental question—can the UK government deliver economic growth and tackle the threat of Reform?

Footnotes

Source: Global Innovation Index 2024. https://www.wipo.int/web-publications/global-innovation-index-2024/en/gii-2024-at-a-glance.html#h2-global-innovation-index-2024-rankings
Source: ONS as at 11 December 2024. Business enterprise research and development, UK - Office for National Statistics
Source: GOV.UK as at 26 June 2025. Facts and figures: patents, trade marks, designs and hearings: 2024 - GOV.UK
Source: UK government website, www.gov.uk, as at 20/7/22.
Morningstar ratings are applied at share class level, which means that each share class requires 36 monthly returns before it will be awarded a rating.
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Effective 30 September 2025, the FTF Martin Currie UK Equity Income Fund, FTF Martin Currie UK Rising Dividends Fund, FTF Martin Currie UK Mid Cap Fund, FTF Martin Currie UK Smaller Companies Fund were renamed FTF ClearBridge UK Equity Income Fund, FTF ClearBridge UK Rising Dividends Fund, FTF ClearBridge UK Mid Cap Fund, FTF ClearBridge UK Smaller Companies Fund Effective 30 September 2025, the fund’s investment manager changed to "ClearBridge Investment Management Limited" ("CIML").

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An investment in the Fund entails risks which are described in the Fund's prospectus and the relevant KIID. The value of shares in the Fund and any income received from them can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator, not a guarantee, of future performance.Where a fund invests in a specific sector or geographical area, the returns may be more volatile than a more diversified fund.

Opinions expressed are the author's at the publication date and they are subject to change without prior notice. Given the rapidly changing market environment, Franklin Templeton disclaim responsibility for updating this material. References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund's holding at any one time. Any research and analysis contained in this document has been procured by Franklin Templeton for its own purposes and is provided to you only incidentally. Franklin Templeton shall not be liable to any user of this document or to any other person or entity for the inaccuracy of information or any errors or omissions in its contents, regardless of the cause of such inaccuracy, error or omission.

There is no guarantee that the Fund will achieve its objective. For a free copy of the latest prospectus, the SID, the relevant KIID, the annual report and semi-annual report, if published thereafter or for more information about any Franklin Templeton fund, UK investors should contact: Franklin Templeton, Telephone: 0800 305 306, Email: [email protected] or write to us at the address below. Alternatively, the information can be downloaded from our website www.franklintempleton.co.uk. Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. FTIML is authorised and regulated by the Financial Conduct Authority..

UK equities: change the narrative for the real story

You don’t need to look very far to be confronted with negative headlines and stories of broken Britain. But, maybe it’s time to change the narrative, take a closer look and discover the real story on UK equities.