When the US sneezes, the UK catches a break?

When the US sneezes, the world usually catches a cold.

But what if - this time - it’s, hmm, different?

As cracks appear in the story of American exceptionalism, investors are starting to question the wisdom of crowding into the same seven tech stocks. A decade of rising valuations, falling interest rates, and boundless optimism may have run its course.

And while America has been soaking up the world's investment flows, one market has quietly spent years in the doghouse: the UK.

A decade of outflows

The country famous for its stoicism, “Keep Calm and Carry On” and Monty Python’s unflappable Black Knight, has been quietly dumping its own stock market. It’s not been a blip, either.

UK-focused equity funds have seen net outflows from domestic investors every year for more than nine years.

It started around Brexit. But the pessimism stuck, and even accelerated, the past three years.

British investors didn’t give up on equities altogether, mind you. They’ve been substantial net buyers of global and US-focused equity funds every single year since 2017. And 2024 was a record year for overseas allocations.

So this isn’t about fear of markets, generally. It’s specifically a lack of faith in their own.

The land of pessimism and Pound-stretching bargains

The Forager International Shares Fund has owned UK stocks throughout this nine-year period - sometimes painfully, mostly profitably. And it’s added more as sentiment grew worse and prices got cheaper.

In recent years British investors said “no thanks” to Lloyds Banking Group (LON: LLOY) when yielding 14–15% to shareholders annually through dividends and buybacks. We did not. They also passed on market-leading supermarket Tesco (LON: TCSO) at just 11x earnings while returning all of its free cash flow to investors. Aggregates company CRH (NYSE: CRH) and the world’s largest legal sports betting company Flutter (NYSE: FLUT) both followed the herd to the US where investors, including many of their former UK shareholders presumably, were willing to pay a much higher price for exactly the same company. All four have been excellent investments in the Forager International Shares Fund. 

These weren’t speculative punts. They’re businesses with leading market share, strong profitability and management discipline, trading at steeply discounted prices. Years of single digit PE ratios and double digit yields don’t yet seem to have piqued British investor interest. Perhaps losses elsewhere might be more impactful?

Is sentiment shifting?

Calling the top for US tech stocks, or the bottom for the UK, is a mug’s game. But signs are emerging that investors may be broadening their gaze.

Europe has been drawing fresh attention in recent months.

UK-based investors will soon be reading monthly statements showing bigger percentage losses in their global funds than in their domestic investments (if they still hold any). It turns out the Magnificent Seven aren’t bulletproof. Good old Lloyds, in contrast, is chugging along just fine.

If capital begins to reallocate, even slightly, the UK could find itself in the line of sight for the first time in a long while. As British investors slowly wake up to the fact that valuations matter, their own home market will be sitting there - resilient, familiar, easily available. And cheap.

Until then, the Fund is happy to keep collecting dividends and benefitting from buybacks and earnings growth from its UK investments.

Come to think of it, maybe it’s better they stay asleep.

There are plenty more unloved and overlooked stocks in the UK. Subscribe to our monthly and quarterly reports to find out where the investment team are searching for these bargains.

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Forager International Shares Fund

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