What caught my eye this week.
Despite all the noise about US mega-cap tech shares and the gloom around the moribund [1] UK economy, London’s FTSE 100 index beat the hallowed US markets in 2025: 1 [2]
[3]
Source: Google Finance
These figures don’t even include dividends. Adding them in would favour the FTSE further, with its higher yield.
UK blue chips did better still when you factor in currency moves – the dollar has weakened a fair bit versus sterling over the past 12 months.
What a year for old-fashioned British stockpickers! It must have been like the 1980s all over again for the dwindling band of diehard punters who still debate Lloyds versus Tesco on trading boards such as ADVFN.
Better tell Sid
Good for them – it’s been a long time coming. The UK market had notably underperformed ever since that referendum. At times the rot has felt terminal.
We should note though that it’s only the largest UK companies that have seen a recovery so far.
Mid and small caps – which have borne the brunt of the UK market’s shrinkage in recent years, with scores of takeovers and delistings – are still floundering.
As a group, smaller companies are more sensitive to the domestic economy than are the globe-trotting FTSE big boys. Around 75% of FTSE 100 earnings are generated overseas. Hence the UK economy just isn’t major factor for them, beyond its influence on exchange and interest rates.
That said, investor perception of the UK economy does still affect how even large cap UK share prices do, because it influences, at least at the margin, the multiples of earnings or other metrics that investors will pay for UK-listed stocks. The ‘moron discount’ of recent years isn’t just a bond market feature.
Indeed while large cap UK shares have moved strongly up, I wouldn’t say that global investors are massively happier about the UK itself.
Things can only get better
Labour squandered a window where they might have put a lid on years of witless politics and told the world that Britain was back to business as usual.
Alas so far we seem to have traded chaos for incompetence.
Of course there were no quick fixes for what ails [4] the UK, especially with Brexit [5] now also slowly bleeding out GDP and tax revenues each year.
However Labour hasn’t done much on the slow fixes front either, except perhaps to steady the gilt market and to move a little closer to Europe.
No, I’d say that FTSE 100 stocks jumped in 2025 mostly because they were cheap.
Perhaps they were alighted upon by money looking to diversify away from the US, especially after the April tariff farrago? You’ll find no end of pundits opining so, though given the US markets still attracted plenty of money in 2025 I’m not convinced it’s a complete story.
Also, the cheapness of UK shares was hardly a secret that burst into the open last year.
As I’ve noted, UK shares de-rated after 2016. Overseas predators have been acquiring our firms for a song for years. I flagged the chance to profit from the Great British boot sale [6] back in July 2024 and suggested more ways to profit again last summer [7].
TLDR: last year’s outperformance by the LSE was a long time in the making.
Loadsamoney
Not everything has worked out so far. As I said small caps have yet to participate – and yet they look the cheapest London-listed stocks of all.
Personally my portfolio was tilted towards the little guys and thus I didn’t do as well as I might have in 2025, despite my overall massive UK overweight. Maybe they’ll come good in 2026?
That’s the way of active investing. Luck and hope and perhaps a smidgeon of skill if you’re lucky/hopeful.
Elsewhere, Monevator’s preponderance of passive investors should have had yet another good year, especially with the currency moves. The seemingly unstoppable advance of global trackers might finally hit the buffers for a bit if pricey-looking US stocks [8] ever run out of steam…but, well, everyone has been saying that for a decade.
Some kind of reckoning will very probably come due some day. It always has before. But our house view remains that nearly all investors will do best to stay globally diversified. Even if you do want to be a bit naughty and tweak your allocations in the face of a purported AI bubble or whatnot.
After all, the best-performing ‘proper’ share in 2025 – up 541% [9] no less – calls Tokyo home. I owned precisely no shares of it in my naughty active [10] portfolio. But perhaps your All-World index fund did?
You’ve never had it so good*
What will happen over the next 360-odd days?
Don’t ask me – or anyone else if you think you’ll get a bankable answer.
We can talk about general weather in the stock market – in the same way that we know that summer will be much sunnier than winter. But exactly how sunny or on what days the rain will fall are unknowable.
Similarly, investment return forecasts [11] only begin to carry real weight on timescales of a decade or so.
The FTSE 100 did cross the 10,000 mark [12] for the first time on the first trading day of the year, for what it’s worth. Which is nothing much, except that headline writers can’t wheel out the same headline twice!
Have a great weekend, and all the best with your investing and life in 2026.
*Here’s a link [13] for anyone under-50 who doesn’t feel like they’ve never had it so good and wonders what I’m on about.
From Monevator
From the archive-ator: Three crucial tips for making New Year’s Resolutions stick – Monevator [14]
News
Annual energy bills to fall by more than £100 in April as government removes policy costs – Sky [15]
UK house prices unexpectedly softened in December – Nationwide [16]
Workers hammered while pensioners benefit, says analysis – Sky [17]
Why are young people leaving Britain to work abroad? – BBC [18]
Plymouth led UK house price rises in 2025 – Guardian [19]
Microwave does not make a room a flat, judge rules – BBC [20]
The US ‘captured’ the Venezuelen president overnight – Sky [21]
[22]
Japan’s birthrate falls to historic lows – Semafor [23]
Products and services
Disclosure: Links to platforms may be affiliate links, where we may earn a commission. This article is not personal financial advice. When investing, your capital is at risk and you may get back less than invested. With commission-free brokers other fees may apply. See terms and fees. Past performance doesn’t guarantee future results.
The best current accounts for 2026 – Be Clever With Your Cash [24]
Eleven expert tips for using Vinted – Which [25]
Get up to £3,000 cashback when you open or switch to an Interactive Investor [26] SIPP. Terms and fees apply, affiliate link – Interactive Investor [26]
Should you regift an unwanted present? – Be Clever With Your Cash [27]
Four mortgage and property predictions for 2026 – Which [28]
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link [29]. Terms apply – Charles Stanley [29]
UK investment platforms to cut fees ahead of stocks drive [Paywall] – FT [30]
Homes with a sauna, in pictures – Guardian [31]
Comment and opinion
One in a quadrillion – Fortunes & Frictions [32]
Pray for beta, not alpha – Of Dollars and Data [33]
Is it possible to invest ethically? – Money Changes Everything [34]
UK pensions in 2026: what you need to know – This Is Money [35]
Titanic inequality – A Wealth of Common Sense [36]
What pushed this landlord into selling out of Central London [Paywall] – Telegraph [37]
Getting a better answer to the longevity question – WSJ [38]
Are you sure you want to leave the UK to avoid inheritance tax? [Paywall] – FT [39]
Naughty corner: Active antics
The enshittifinancial crisis – Ed Zitron [40]
“Why I have stopped blogging about my shares” – Maynard Paton [41]
Is gold a hedge, a diversifier, or overpriced insurance? – Quantpedia [42]
Can Bill Ackman’s mini-Berkshire work? – Old Rope Research [43]
The case for Apple as an AI play – Sherwood [44]
Kindle book bargains
How to Own the World by Andrew Craig – £0.99 on Kindle [45]
Zero to One: Notes on Startups by Peter Thiel – £0.99 on Kindle [46]
The Four-hour Work Week by Tim Ferriss – £0.99 on Kindle [47]
How to Break Up With Fast Fashion by Lauren Bravo – £0.99 on Kindle [48]
Or pick up one of the all-time great investing classics – Monevator shop [49]
Environmental factors
[50]
Faxing Barry Blimp – Guardian [51]
Ministers may cut clean tech mandate from new homes in England – Guardian [52]
Meet five new species discovered in 2025 – NPR [53]
How a community saved Mexico’s Galapagos… – Guardian [54]
…and the rare birds making a comeback in the actual Galapagos – BBC [55]
People who drink bottled water daily ingest 90,000 microplastic particles a year – Wired [56]
Winter blooming in UK a visible sign of climate breakdown – Guardian [57]
Robot overlord roundup
The shape of AI: jaggedness, bottlenecks, and salients – One Useful Thing [58]
If this is really an AI bubble, let’s see more inflation – Sherwood [59]
The office block where AI doomers gather to predict the apocalypse – Guardian [60]
Humans should be ready to pull the plug on AI rights, says pioneer – Guardian [61]
Track the latest AI news via Delta Hedge’s regularly updated thread – Monevator [62]
Not at the dinner table
The NHS is at risk: how to save it – BBC [63]
Brexit deepened the UK economy’s flaws and dulled its strengths [Paywall] – Economist [64]
How the Greens plan to beat Reform at their own game – Guardian [65]
Millions of Americans brace to start new year without healthcare – BBC [66]
How did DOGE disrupt so much while saving so little? – New York Times [67]
Identity mini-special
There are no pure cultures – Aeon [68]
Number who say Britons must be born in UK is rising, study shows – Guardian [69]
Why women on LinkedIn are masquerading as men – Washington Post via MSN [70]
Abd el-Fattah citizenship row shows shift on questions of national identity – Guardian [71]
Off our beat
When ‘Concordia’ returns to Great Britain – Genuine Impact [72]
The liberation of living with less clutter – Bloomberg [73] [h/t Abnormal Returns [74]]
Remembering the Guinness scandal [Podcast] – A Long Time in Finance [75]
The US must stop underestimating drone warfare – Wired [76]
Why everybody loves Japan – Noahpinion [77]
Random turn-of-year factoids mini-special
52 things I learned in 2025 – Kent Hendricks [78]
52 things I learned in 2025 – Nancy Friedman [79]
The original 52 things learned in 2025 – Tom Whitwell [80]
52 ways to make your life easier in 2026 – Guardian [81]
55 things learned in 2025 [Missed the memo?] – The Atlantic [82]
And finally…
“Success was individual achievement; failure was a social problem.”
– Michael Lewis, The Big Short [83]
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- Graph below shows 12 months to 2 January 2026. Date ranges are a pain in Google these days, but I’m still fond of its clean look.[↩ [91]]