The UK equity market has continued to tick along quite nicely this year and to provide interesting opportunities for income investors like us.
Both the FTSE 100 and FTSE All Share indices have touched record highs in 2026, although the US and Asian markets have grabbed more attention. The UK market remains divided, with global large caps, particularly financials, resources and defence companies outperforming. Shares of domestically focused small and midcap businesses have underperformed.
There has been a significant uptick in takeovers and asset disposals, including several large deals and some involving our holdings.
Our income strategy, which includes the UK Income and UK Multi Cap Income funds, aims to deliver for investors an income in excess of the market’s and that grows above inflation, along with the potential for capital growth.
Mix of companies
We hold a mix of large companies with strong cash flows that we believe can support growing dividends, along with smaller businesses that trade on undemanding valuations that we think have good potential to grow.
Over the last 18 months we have been able to recycle profit from outperforming holdings including banking and mining shares, into new holdings. Our portfolios today look quite different than they did a year-and-a-half ago.
Diageo, Gamma
We have added some consumer stocks, including Diageo, which is restructuring amid concern about changing consumer tastes for food and drink.1 Other additions have been Wilmington (publishing and training), Warpaint (cosmetics) and Gamma Communications (telecommunications).
Gamma in September accepted a takeover offer from a private equity buyer,2 and was one of several holdings that was acquired this year, Intertek, Segro and Schroders being others.3 The pace of corporate activity highlights to us that trade and private equity buyers see good companies trading at attractive valuations in the UK – just as we do.
The bidders are prepared to pay premiums to market prices, even with the higher cost of borrowing. A sample of the takeover premiums this year include Segro (36%), Intertek (40%), Beazley (63%).4
Both the volume and size of deals have increased. Some commentators have suggested the takeover activity has become excessive – it has been called the Great British Sell Off. Our view is that we are here to make money for clients, and we are happy to accept premiums on their behalf, and to recycle profits into new ideas for the portfolios.
IPO activity has not matched the pace of mergers & acquisitions, but we would expect new listings to happen eventually, particularly in sectors such as defence and financials, where valuations are healthy.
Macro challenges
This year has delivered important macroeconomic and geopolitical challenges that markets had not expected in January. Inflation has been running above the targets of global central banks including the Bank of England (BOE) due to energy prices and supply disruption from the Iran and Ukraine conflicts. This has undermined market hopes for BOE interest rate cuts that would be supportive for equites. UK gilt yields have followed sovereign bond yields higher across developed markets. All of this has pushed up borrowing costs for consumers and companies and weighed on businesses in interest rate-sensitive sectors such as housebuilding and real estate.
Another new Labour government is facing difficult fiscal choices. We hope the Burnham government can offer policies that support growth. Consumer and business finances are solid, but confidence is soft. Britain’s economy is running at a low-growth pace, and the pound has remained steady.
UK returns
Clients sometimes ask us about the relevance of UK equities in today’s global markets as the UK has shrunk in relative size – currently 3.6% of the MSCI World index.5 We like to point out that in the five years through July, the annualised total return (including reinvested dividends) of the FTSE 100 is 13% compared with 12.8% for the S&P 500 and 10.7% for Europe’s Stoxx 600.6
In the case of the FTSE 100, that performance comes without a single AI stock. The figures are based on total returns, which assume reinvestment of dividends and therefore reflects both capital movements and dividend income.
FTSE 100 dividends are expected to reach £89 billion in 2026, exceeding the 2018 record of £85 billion, with 53% of this year’s expected payouts coming from just 10 companies (including HSBC, Shell and British American Tobacco).7 It’s worth noting that dividends aren’t guaranteed, and that there have been 129 dividend cuts from FTSE 100 companies in the past decade, mostly in the Covid-disrupted years of 2019-2020.8 This underscores the importance of careful company analysis, including around free cash flows and balance sheets.
UK, US and Europe total return indices 2021-2026
We hope that international allocators will look more to the UK over time. We see compelling arguments for owning UK equities in terms of valuation, diversification and income.
As active investors employing careful analysis and stock selection, we see good opportunities to generate income in the UK market. We think a portfolio of larger, consistent dividend paying companies along with attractively priced quality growth companies with good long-term prospects can potentially be a powerful source of income and returns over time.
Please note strategy risks
- Pricing Risk – Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
- Market Concentration Risk (Geographical Region/Country) – Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
- Derivative risk – the strategy may use derivatives to reduce costs and/or the overall risk of the Strategy (this is also known as Efficient Portfolio Management or “EPM”). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the strategy.
- Liquidity Risk - Some investments may be hard to value or sell at a desired time and price. In extreme circumstances this may affect the strategy’s ability to meet redemption requests upon demand.
- Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the strategy.
- Counterparty Default Risk – The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the strategy’s assets.
- Smaller Companies – The strategy invests in smaller companies, which can be less liquid than investments in larger companies and can have fewer resources than larger companies to cope with unexpected adverse events. In less favourable market conditions these companies may therefore under-perform larger companies and The strategy may under-perform strategies that invest predominantly in larger companies.
Footnotes
1 Reuters,22.7.26. https://www.reuters.com/business/diageo-teams-face-up-30-reductions-ceo-drastic-dave-slashes-costs-2026-07-22/
2 Gamma takeover announcement, 1.9.26. https://gammagroup.co/company/investors/disclaimer-content/disclaimer-announcements/
3 Morningstar, 29.6.26 https://global.morningstar.com/en-gb/stocks/ftse-100-stocks-why-strategic-buyers-are-targeting-uk-companies
4 AJ Bell data via Morningstar, as at 30.7.26
5MSCI World factsheet, as at 31.7.26
6Bloomberg, as at 2.9.26. Returns in local currency. Past performance is no indication of future returns.
7AJ Bell dividend dashboard, June 2026.
8AJ Bell dividend dashboard, June 2026.er and health sectors. We would expect to see dividend growth in the market this year, and as income investors we see some of the most interesting potential opportunities in areas of the market that have been the most overlooked.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
This is a marketing communication. This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. It is information only and is not investment advice. Company/Stock examples are for illustrative purposes only and are not a recommendation to buy or sell. The views expressed are those of the author(s) at the time of preparation, are not necessarily those of Jupiter as a whole and may be subject to change. Past performance does not predict future returns. The value of investments and income may go down as well as up and investors may not get back amounts originally invested. Exchange rate changes may cause the value of investments to fall as well as rise. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. This document may include ESG-related content which reflects Jupiter’s current policies and frameworks and may evolve over time. No part of this document may be reproduced in any manner without the prior permission of Jupiter. Issued in the UK and certain countries within the Middle East and Africa regions by Jupiter Asset Management Limited which is authorised and regulated by the Financial Conduct Authority. Registered address: The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ.