I think it’s fair to say that UK shares are often overlooked in favour of some of their more glamorous contemporaries on the other side of the Atlantic. But despite the hype surrounding US tech stocks, the FTSE 100 outperformed the S&P 500 in 2025.
Here’s why I think it could happen again over the next 12 months.
1. Attractive valuations
By historical standards, UK shares appear to offer better value at the moment (3 January).
One way of measuring this is to look at the so-called Buffett indicator. Expressed as a percentage, it measures the total capitalisation of a particular stock market relative to a country’s Gross Domestic Product. In simple terms, it’s a market-wide price-to-earnings ratio.
At the end of 2025, the indicator was 219.4% for US stocks, a tiny bit below the all-time high achieved in November 2025. By contrast, the figure for the UK was 118.8%. The 20-year high is 139.4%.
Investors seeking value-for-money could turn to UK stocks.
2. Less reliance on tech stocks
Ironically, what’s seen as the UK’s Achilles’ heel could work in its favour. Most of the world’s tech-focused stocks are listed in the US. This has resulted in some extraordinary valuations for many pre-revenue companies, particularly in the artificial intelligence (AI) sector. Daily, we’re warned that the ‘bubble’ could soon burst.
Personally, I’m not too concerned about the valuations of the Magnificent 7. But there are plenty of smaller AI companies that could be dented by a downturn.
Of course, if there’s a crash in America, UK stocks will suffer too. It’s estimated that approximately 80% of the revenue of FTSE 100 companies is earned outside the country. However, some of the less fashionable stocks on the index could weather the storm better than most.
One example of this could be National Grid (LSE:NG.).
It enjoys a monopoly in its major energy markets. This means it doesn’t have to worry about finding new customers. But its operations are regulated — it has certain performance targets to meet. Missing these could result in the imposition of fines or other sanctions. It also has to spend large sums maintaining network infrastructure, which is why its debt’s on the high side.
But the group says it’s on course to grow its earnings by 6%-8% per annum over the next four years. People will still need gas and electricity even if the US and UK economies start to slow down.
3. Better dividends
Finally, another advantage of UK stocks is that, generally speaking, they pay better dividends than their US counterparts. At 1.14%, the yield on the S&P 500 is at its lowest level since records began. Based on amounts paid over the past 12 months, both the FTSE 100 and FTSE 250 are offering a return nearly three times higher.
Indeed, National Grid’s yield is presently 4.1%. Although there can never be any guarantees when it comes to dividends, the group’s predictable earnings put it in a strong position to achieve its target of increasing its payout in line with inflation every year up until 2029. This is another reason why I reckon the stock’s worth considering in these uncertain times.
On balance, I remain optimistic about UK shares. Indeed, I reckon there are plenty of high-quality companies with strong balance sheets to choose from.
