People like exciting stories like the US Mag 7. They're easy to sell to clients. They're exciting. They're growing. They're new technologies, but normally because of that, they get priced highly.
Hello everyone and welcome back to the Personal Investor podcast. I'm Ed Monk and I'm very pleased to be joined today by Alex Wright. Alex is the portfolio manager of two of the UK's most popular investment funds, Fidelity Special Situations and the Special Values Investment Trust. He's well placed then to pass judgment on the state of the UK stock market right now. And as an avowed value investor, he can fill us in on how that approach stacks up in a world dominated by AI and tech. Before all of that, let me remind you that if you find this video useful or interesting, please subscribe to the channel, give us a like, join the discussion in the comments below. It really will help others find what we're doing here and it means that you'll get new content as soon as it is released. That all said, Alex, welcome along. Let's start if we can with a snapshot of where UK shares are right now. Characterize the past year or so. What has been driving the really quite strong returns that we've seen?
Yeah, so it's been a great year in 2025 for UK stock markets. So the FTSE All-Share, the main index, is up about 24%, and that's very substantial sort of outperformance of other markets, particularly the US. And I think the key driver actually has been sort of financials. So they're big in the UK index. They make up about 29% of the FTSE All-Share, and indeed their performance was up 39%. So that's been a real key driver, along with also some strong performance from sort of basic materials and industrials, which are quite large sectors in the UK also.
Yes. And the funds that you run have captured all of that growth and more. And looking at different parts of the market at an index level, the largest companies, the FTSE 100, that's done better than the midcaps in the 250, which have done better than the small caps. Your funds, both funds, have kept ahead of all of that. How has it done that?
Yeah, you're right. So the market has very much been driven by those larger companies, with a big drag from the lower performance of the mid and the small caps. Actually, about 60% of my funds are invested in that smaller cap and midcap part of the market. So actually, it's been great that we've managed to produce about a 25% return, so just greater than the market, despite having that big drag. And I think the key elements within that is a large weighting to banks, which have been particularly strong, where we've got about 15% of the portfolio. Also, some very strong performances from our stock-specific ideas in defence, which has also been a strongly performing area. We've had decent positions in Rolls-Royce, Babcock, Chemring, and also M&A has been a theme. So we've had some bids in the fund, most notably Beazley and Just Group, which has also really helped performance in the more midcap part of the market.
And just further to that then, are there big parts of the market, certain sectors that you avoid in the fund, or that you're underweight?
So that definitely also, which has been a big help, is there have been some UK stocks, despite the overall market doing very well, that have done very badly in 2025 that we haven't owned. So Diageo, I think it's the worst performer in the FTSE 100. We haven't had a position there. LSE is another one that's done particularly badly. And so it's not just sort of what we've owned, it's what we haven't owned that's been a real benefit through 2025.
Yeah. And turning then to the UK versus the rest of the world, and particularly the US. Have you seen evidence of a meaningful rotation away from the US? We've heard about this in the press that it is happening. Has the UK benefited, and how much has it benefited versus other countries, would you say?
Oh, so clearly 2025 was a really interesting year because the US stock market meaningfully underperformed. With, certainly in pound terms, UK index up 24, US index up 10. So that's a huge divergence, and that clearly shows that there are investors selling US stocks and buying UK companies. And that has happened not just for the UK market but for other markets ex-US as well. So in fact, US performance has been one of the poorer performing stock markets globally this year. You wouldn't really know it from commentary because most of the popular invested commentary still seems to be around sort of exciting US companies and AI, but actually overall US performance was quite poor on a relative basis in 2025.
And so where does it all leave us as we begin another new year? Where have the gains left us in terms of valuations, for example, versus other markets?
