Laura Foll: What I learnt about UK investing in 2025

The new year is always a good time to reflect on what lessons we may have experienced in last year that might be valuable in 2026.

Sometimes the best lessons are reminders – things we always knew but may have forgotten. Here’s what I learned (or at least was reminded of) in 2025. 

The UK economy and the UK stock market are not one and the same. UK GDP growth was modest (at best) last year, yet the UK stock market was up around 20% when you include dividends. 

I often meet investors that are sceptical about the UK economy. I must admit I sometimes share their scepticism, but being overly pessimistic on the domestic economy would have meant missing out on one of the best-performing stock markets of the year.

On paper, the S&P 500 looks to have generated a similar return. But remember the USD was worth 80p at the start of last year. It’s roughly 75p now. That drag means your returns in sterling are significantly less than they would have been from the UK market. 

Despite that outperformance, UK equity valuations still look roughly in line with their long run average, in contrast to markets such as the US (which would be substantially above average). Low starting valuations historically correlate with better long-run real returns, so I continue to be positive on the opportunities in the UK market for this reason.

Ignore the bleak midwinter, mid-term commentary on the government’s handling of the economy and even the most sceptical might grudgingly accept that UK equities are relatively attractive. 

The best total returns can be made when earnings and the valuation recover at the same time. This feels like an astronomical event – an alignment of the stars – and a suitable analogy for Epiphany. It tends to need an end-market tailwind (or at the very least the lack of a headwind) and usually coincides with a company refocusing on what it originally did best. 

Last year one of the best performers across the portfolios I co-manage was defence supplier Babcock. This recovery had been building steadily over several years as the new(-ish) CEO and CFO sold off peripheral divisions to improve the balance sheet and refocus on the defence business, took costs out and improved margins. 

Since first purchasing it a few years ago I have seen the earnings per share and the valuation (as measured by P/E) both roughly double. For this to have worked a few things needed to coincide – it needed to have a fair amount of ‘self-help’, but it also needed a change in the end-market backdrop. 

Identifying turnaround potential is challenging, but what I’ll be looking for in the year ahead are companies focusing squarely on what they’re good at, trading on what looks to be a depressed valuation on top of depressed earnings, and where the backdrop looks at least stable.

Expect the unexpected. A holding I was worried about earlier last year, chemicals multinational Johnson Matthey, sold off a minor division for almost 80% of its market cap. Another company I held since IPO and whose CEO I met more times than I could count, uPVC window and door manufacturer Epwin, was unexpectedly taken over.

At the opposite end of the spectrum, companies where I was convinced earnings had troughed in 2024 and recovery was imminent saw their earnings recovery kicked out another year at least. Pavings company Marshalls is a good example of this. All these things served as a good reminder of the importance of portfolio diversification.

Be patient. As someone who spends the vast majority of their time thinking about and investing in the UK stock market, there have been times in recent years when I have felt patience running thin. Some companies that I invest in were undoubtedly well managed but running hard to stand still in challenging end markets.

It can be hard to resist the temptation to tell management to ‘do something!’ in this situation, even if as a long-term shareholder you know (deep down) that sometimes the best thing to do is nothing, beyond keeping a tight handle on costs and a sensible balance sheet.

A few times last year, I’ve reflected on interactions with management teams or boards and thought I’ve been guilty of becoming the short-term pressure that I often lament. This year, I’ll aim to do better. A resolution! 

I may not have had any great epiphanies in 2025, but you can’t do this job without continually learning lessons. It’s a big reason, I suspect, why so many of us love investing – whether we’re professionals or amateurs. May your stars align in 2026!

Laura Foll is co-manager of the Lowland (LWI) and Law Debenture (LWDB) investment trusts at Janus Henderson, as well as Janus Henderson’s UK Equity Income & Growth open-ended fund.