Since 2022, UK equities have outperformed US and global markets, driven by a rotation from growth to value and by higher interest rates that favored cash‑generative sectors where the UK is structurally overweight. Energy and banks benefited in particular, while the UK’s resilient dividend profile regained appeal. Notably, this period of outperformance occurred without meaningful valuation multiple expansion. We’ve explored this shift in a recent article, A Decade After Brexit, UK Stocks Are Rebounding—But Can it Last?
The recovery, however, has been uneven. Large-cap UK equities have delivered strong returns, supported by global revenue exposure and favorable sector positioning, while small and mid caps have lagged, weighed down by domestic exposure and valuation compression.
The UK market structure—high valuation dispersion, sector concentration, and underresearched mid- and small caps—is conducive to alpha generation, and particularly down the market cap spectrum, the penetration of passives is lower.
There is a potential shift back toward active strategies if performance improves relative to passive funds, and the environment favors stock pickers.
Here is a selection of Morningstar analysts’ favorite strategies.
The 4 Best Funds to Hold for the Next Decade
- Artemis UK Smaller Companies
- Fidelity Special Situations
- JPM UK Equity Core
- The City of London Investment Trust CTY
Morningstar Metrics for Artemis UK Smaller Companies
- Morningstar Medalist Rating: Bronze
- Process Pillar: High
- People Pillar: High
- Parent Pillar: Above Average
- Category: EAA UK Small-Cap Equity
Artemis UK Smaller Companies is a compelling option and one of the best in the category. Mark Niznik and William Tamworth target niche market leaders with strong balance sheets trading at reasonable valuations. Their approach results in a differentiated portfolio and is more value-oriented than category peers. The duo assumed responsibility for Gold-rated Artemis UK Future Leaders AFL—formerly the Invesco Perpetual UK Smaller Companies Trust—in March 2025. The trust shares the same approach and currently trades at a notable discount to NAV.
Morningstar Metrics for Fidelity Special Situations
- Morningstar Medalist Rating: Gold
- Process Pillar: High
- People Pillar: High
- Parent Pillar: Above Average
- Category: EAA UK Flex-Cap
Fidelity Special Situations is a contrarian strategy that seeks out unloved companies with a catalyst for rerating, as well as a margin of safety to protect on the downside. The fund benefits from stable leadership with Alex Wright in place since 2014, and we view the manager’s skill as primarily valuing companies and recognizing where catalysts are underappreciated. Not surprisingly, there is a cyclical bias to the portfolio and consistent exposure to SMID caps, where Wright’s background as a smaller company specialist helps.
Morningstar Metrics for JPM UK Equity Core
- Morningstar Medalist Rating: Silver
- Process Pillar: Above Average
- People Pillar: Above Average
- Parent Pillar: Above Average
- Category: EAA UK Large Cap
Backed by JPMorgan’s extensive research network, the strategy aims to provide low-cost, low-active-share exposure to UK equities. The strategy follows an index-plus approach, seeking to outperform its benchmark by favoring stocks with strong value, quality, and momentum traits, expressed through modest over- and underweights. The strategy’s low tracking error and benchmark-aware construction result in performance that closely mirrors the market, with an expected beta near 1. However, the portfolio is designed to outperform its benchmark over most market cycles, driven by disciplined stock selection and targeted exposure to value, quality, and momentum factors.
Morningstar Metrics for The City of London Investment Trust CTY
- Morningstar Medalist Rating: Gold
- Process Pillar: Above Average
- People Pillar: High
- Parent Pillar: Average
- Category: EAA CE UK Equity Income
City of London Investment Trust stands out as a core UK equity income option, underpinned by an experienced management team, a consistent investment process, and competitive fees. Our conviction rests primarily on Job Curtis, who has managed the trust since July 1991—a tenure that is exceptionally rare in the industry. The investment trust structure allows CTY to reserve income in good years to maintain payouts during tougher periods, underpinning a dividend that has increased every year since 1966 (a record unmatched in the sector).
This article is taken from the report The Brexit Decade: How a Vote Reshaped UK Markets.
