Outlook and strategy for UK investing in 2026

Alex Wright, portfolio manager of Fidelity Special Values plc (LON:FSV), shares his outlook for 2026 and outlines why he believes UK equities continue to offer one of the most attractive valuation opportunities in global markets. He discusses how the sharp divergence between large caps and smaller companies has created a favourable environment for an investment approach which focuses on individual stocks and fundamentals rather than macroeconomic trends and why unloved domestically focused businesses now present a compelling opportunity.

Outlook for the strategy in 2026

UK equity markets have staged a meaningful resurgence and are on course for their best calendar year since 2013, comfortably outpacing the US and other developed market peers. While the market’s optimism and rise in valuations should warrant caution, this marks a significant milestone in what has been a genuine revival in UK equities. Importantly, this outperformance isn’t a new phenomenon, UK shares have outperformed global markets over the last 5 years. Despite this, domestic investors have continued to withdraw capital and allocate overseas, even as international investors have begun to recognise the opportunity the UK presents.

Heading into 2026, the UK enters the year from a position of strength. The market continues to trade at a meaningful discount to other major regions – both on outright price to earnings multiples and after adjusting for structural sector differences, such as the heavy weighting of technology in US indices. While bullish sentiment has driven valuations to more demanding levels across many global markets, the UK still offers many pockets of value, particularly further down the market cap spectrum. Our strategies maintain a structural bias towards these smaller and mid-sized businesses, as these businesses are typically less well known to investors and often receive limited and artificial coverage by the sell side.

Domestically exposed areas have been weighed down by economic and political uncertainty. Interestingly, buying the UK market does not necessarily mean buying the UK economy. More than three-quarters of revenues generated by UK-listed companies come from overseas, providing investors with access to globally diversified earnings streams at valuations that remain attractive relative to international peers. The remaining quarter of the market, which is more domestically focused, has generally been held back, yet it offers selective opportunities where valuations more than discount a subdued backdrop. These unloved areas present compelling investment prospects and would benefit from a more stable environment in 2026 – though conditions do not need to improve materially for valuations to begin to recover.

How is the strategy positioned against this backdrop?

We search for ideas across sectors and the market cap spectrum, focusing on unloved companies with the potential for positive change. Positioning is driven by our bottom-up, contrarian-value investment approach. We have been finding value further down the market cap spectrum as large-cap companies are trading close to their long-term averages, with the FTSE 100 on 14.2x forward price to earnings. Whereas mid-cap and small-cap companies remain materially undervalued, trading at 11.4x and 10.8x forward earnings respectively.

While our investment process is driven by focusing on individual stocks and fundamentals, we categorise the market into super sectors to articulate positioning changes. Financials remain the largest absolute sector weight in the portfolio, but this exposure is highly diversified across a variety of sub-sectors, geographies and business models. Our weighting has moderated slightly due to increased takeover activity and profit taking within our insurance holdings and recycling capital from strongly performing bank positions. Nevertheless, we continue to hold meaningful exposure across the banking sector, including emerging-market-focused Standard Chartered, domestic lenders Lloyds and NatWest, Irish banks AIB and Permanent TSB, as well as a couple of smaller banking positions.

We have actively recycled capital from defensive areas that have performed well such as tobacco and defence companies, and leaning into unloved, domestically focused businesses, with attractive turnaround stories. Particularly in consumer-related areas such as housing, furnishings, and home improvement, where volumes remain 10–25% below pre-Covid levels. UK household balance sheets are healthy, and savings rates elevated. With inflation easing and interest rates likely to follow, improving confidence could support consumption. These collection of businesses combine attractive stock-specific opportunities with depressed industry volumes, offering multiple catalysts to support a turnaround. While we are marginally leaning into domestically cyclical areas, we continue to strike the right balance with defensive earnings streams, notably in utilities, support services and non-life insurance.

Within resources, our underweight position has narrowed as we have identified selective opportunities. While our oil exposure has fallen over the past twelve months, our exposure to mining has increased. We remain underweight large-cap miners, reflecting our cautious view on iron ore, but hold a position in Glencore, supported by its attractive commodity mix and our constructive outlook on copper.

Our analyst estimates point to an improving earnings backdrop for the UK market in 2026, with an even stronger outlook for our strategies, which continue to trade at a healthy 20–25% forward price-to-earnings discount to the wider UK market – without compromising on the quality of the underlying businesses. Despite the strong recent performance, we remain confident in our holdings and in the UK market’s capacity to deliver attractive long-term returns.

Fidelity Special Values PLC Past Performance (%)
	Nov 20 – Nov  21	Nov 21 – Nov 22	Nov 22 – Nov 23	Nov 23 – Nov 24	Nov 24 – Nov 25
Net Asset Value	30.3%	5.2%	2.0%	21.2%	24.4%
Share Price	29.2%	-2.1%	0.4%	19.7%	32.7%
FSTE All-Share Index	17.4%	6.5%	1.8%	15.7%	20.0%
Past performance is not a reliable indicator of future returns.   Source: Morningstar as at 30.11.2025, bid-bid, net income reinvested.   ©2025 Morningstar Inc. All rights reserved. The FTSE All Share Index is a comparative index of the investment trust.

¹Fidelity International, LSEG Workspace / Bloomberg, 30 November 2025.

Important information

Past performance is not a reliable indicator of future returns. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. This trust can use financial derivative instruments for investment purposes, which may expose them to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Investments in smaller companies can carry a higher risk because their share prices may be more volatile than those of larger companies. The shares in the investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment.  If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

The latest annual reports, key information document (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity.  The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment Services (UK) Limited. Issued by FIL Investment Services (UK) Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0126/416080/ ISSCSO00264 /0726

Fidelity Special Values PLC (LON:FSV) aims to seek out underappreciated companies primarily listed in the UK and is an actively managed contrarian Investment Trust that thrives on volatility and uncertainty.