Key Takeaways
- Attractive valuations and resilient earnings make the UK an attractive market despite the effects of the Iran war, say Polar Capital managers George Godber and Georgina Hamilton.
- The managers of the Gold-rated Polar Capital UK Value Opportunities Fund say companies are learning lessons from 2022 in dealing with the Iran war impact.
- Hamilton and Godber see AI disruption as an enduring theme, while opportunities down the market cap scale could arise if a ceasefire holds.
The fundamentals that made the UK an attractive market for investors in 2025 remain in place despite the Iran war, say Polar Capital fund managers George Godber and Georgina Hamilton.
The UK equity market soared last year, rising over 20%. And though the Iran war has halted what was a strong start to 2026, the Polar Capital managers believe the long-term drivers of returns are still in place.
Hamilton and Godber run the Gold-rated Polar Capital UK Value Opportunities Fund, which over the past three years, has returned 46.3%, over double the return of its peer group average and above the broader Morningstar UK Index.
Morningstar Metrics for Polar Capital UK Value Opportunities Fund
- Morningstar Medalist Rating: Gold
- Morningstar Rating: ★★★★★
- Equity Style Box: Mid Blend
- Fund Size: £771.6 million
- People Pillar Rating: Above Average
- Process Pillar Rating: High
Navigating Iran War Impact
After reaching all-time highs in February, the FTSE 100 and the broader UK market sold off on the outbreak of the Iran war as energy prices surged. Sectors closely tied to inflation and interest rate expectations such as banks and housebuilders were among those which fell the most. Recent political events in May have seen the UK stock market weaken too.
The managers took the March selloff as an opportunity to bolster their positions in some of these sectors.
“The market was quite logical in what it hit hardest, which actually made it harder for us to cherry-pick,” says Hamilton.
“We therefore bought across most of those sectors pretty much uniformly. We’ve had the opportunity to add to areas of weakness, and we anticipate that in the event of a ceasefire holding, those hard-hit areas will rebound,” she adds.
“We’ve had the opportunity to buy some genuinely good businesses at temporarily depressed prices.”
UK investor attention remains focused on the impact of the war on the UK economy, which will filter through into macroeconomic data in the coming months: The next inflation data, for April, is due on May 20. Signs of the impact of the Iran war on the cost of living have already become visible in eurozone and US inflation data.
The war is expected to have an outsize impact on the UK economy, with IMF forecasts predicting the economy will take the largest hit to growth of all developed nations. Inflation is on the rise, while hopes of interest rate cuts this year have given way to expectations for hikes.
Are UK Companies Better Prepared Than in 2022?
Hamilton says that companies seem to be more alive to the risks of an energy supply shock than they were during the last major spike following Russia’s invasion of Ukraine in 2022.
“What’s encouraging is that the companies we’ve met are much more hedged than they were going into the last period of volatility. I suspect the near-term earnings impact will be shorter and smaller than people think,” she says.
Following the 2022 energy supply shock from the Russian invasion of Ukraine, many UK companies bought energy price protection to mitigate the risk of future price spikes.
“I think that protection will give a bridge for a number of businesses to allow investors to look beyond the immediate uncertainty. We don’t yet fully understand that picture across the whole market, but I think it’ll provide some calming to earnings volatility and give people a bit more time to think about the other side of the uncertainty,” she adds.
AI Disruption Is an Enduring Theme
Despite the economic headwinds brought about by the war, Hamilton says a lot of the dynamics that contributed to a strong 2025 for UK stocks remain in place.
“Clearly, we are in a period of global uncertainty. But if anything, the UK market positions itself quite well relative to the Iranian conflict,” she says.
The UK market has a heavy weighting toward energy stocks such as BP BP. and Shell SHEL, which have recorded bumper profits as oil prices spike and provided portfolios with some protection from the wider selloff.
Meanwhile, the FTSE’s HALO—heavy asset, low obsolescence—stocks could benefit from uncertainty around AI disruption, UK fund managers say.
Is the FTSE 250 Attractively Valued?
The UK market remains cheap relative to its peers, with Morningstar analysis suggesting UK companies trade at a 30% discount to the US.
Sentiment toward the FTSE 250, the domestically focused midcap index, remains subdued given the challenges facing the UK economy, but this is where the managers see opportunities arising in the event of a ceasefire.
“We are overweight domestic companies and overweight mid-caps. An interesting dynamic that’s occurred is that the FTSE 250 is now cheaper than the FTSE 100—that’s a very different picture from last year, when the FTSE 250 traded at a premium. And the 250 now has better earnings growth,” Hamilton says.
“That dynamic will only play out if the Iran war de-escalates—if it doesn’t, the 250 will be seen as more cyclical and no one will care that it’s cheaper,” she adds.
“In the event that a ceasefire holds and earnings growth continues, having the FTSE 250 cheaper with better earnings growth means our ability to rifle-shot good ideas down the market cap spectrum should be a real advantage—more so than when the 250 was at a premium.”
Overall, the managers say the UK remains attractive despite ongoing headwinds.
“The UK market has a strong showing of HALO assets. Value is in favor for both Europe and the UK, and the UK is the only market that’s cheap versus its history and versus peers,” Hamilton says.
“Those things have not dramatically changed, and I think that forms the bedrock for an easier sell on the UK.”
