The opening scene of Woody Allen’s Stardust Memories shows the main character, Sandy Bates, on a stationary train full of taciturn, downcast, blank-faced passengers. He glumly glances at a carriage on an adjacent track and realises its occupants, by jarring contrast, are having the time of their lives.

Bates accosts a conductor, claims to have boarded the wrong service and pleads to be allowed to disembark. His protests go unheeded, and he can only catch a last glimpse of the frivolity – so close yet agonisingly out of reach – as the other group, still laughing and carousing, disappears from view.

Something akin to this celebrated vignette has defined the relationship between UK equities and their US counterparts for several years. The former have seemed stuck on the first train, solemnly wondering why they are unable to join the fray, while the latter have been running wild on the second, cavorting to their hearts’ content.

Yet the picture has become rather different of late. UK equities are no longer sitting in stupefied silence and gazing enviously through the windows. The volatility triggered by President Trump’s trade policies has reminded investors that big-name tech titans and other mega-cap Statesiders do not represent the only party in town.

Of course, this is not to imply US stocks have been totally derailed. Relatively speaking, though, they have at least hit the buffers – as a result of which UK companies are gaining the sort of attention they have long deserved.

A key question for many investors now is whether this will prove a lasting shift or another false dawn. After all, those of us who specialise in UK markets have been championing their return to the spotlight for longer than we might care to remember.

So are we really back on track? Here are five encouraging signals that suggest the line could be clear at last.

1. A boost for domestically focused companies

The new US-UK deal on tariffs may limit the damage caused by Trump’s confrontational stance on global trade, but the situation is still negative when compared to the previous status quo. This means now could be an excellent time to explore opportunities among the UK’s non-exporters.

Take food-and-drink distributor Kitwave. It delivers a range of products to wholesale, retail and food-service customers across the country. With the fallout from “Liberation Day” highlighting the attractions of domestically focused businesses, the company’s share price rose by more than 20% in April.

2. Solid results and genuine optimism

Even before Trump’s bombshell announcement in the White House’s Rose Garden on April 2, the broader outlook for UK equities steadily grew brighter during the first months of 2025. After a difficult start to the year, rather than moderating their guidance, many companies have been posting surprisingly strong results and positive forecasts.

We have seen good news from our holdings across various sectors and industries, including publishing (Bloomsbury), construction and infrastructure (Morgan Sindall), home improvement (Dunelm), retail (Next) and technology (Alfa Financial Software). This is not merely the stuff of recovery: it is an indication that the general level of optimism is unusually high.

3. The herd is getting wise

Many UK equities have been significantly undervalued for some time, most obviously in relation to US stocks. In our opinion, some have been remarkably inexpensive. Now, finally, the gap is starting to narrow.

One of the greatest joys of investing stems from recognising a business’s long-term potential before the herd acknowledges as much. It is always nice to “get in on the ground”. There is still plenty of scope to do so, even though “peak cheapness” is probably already behind us, but it might not be wise to wait too long – particularly with the US’s lustre fading further in light of mounting fears over the government’s ability to pay back its debt and sidestep recession¹.

4. Income still has a major part to play

As well as re-emphasising the importance of diversification, market upheaval has re-underlined the appeal of income from dividends. This is a consideration that really comes to the fore in the face of falling interest rates – a race in which the UK has an edge over the US at present.

Collectively, UK equity income funds have performed well so far in 2025, with an average return of nearly 5% between January 1 and May 13². While a lot of the performance to date has come from larger companies, smaller businesses are increasingly likely to benefit as inflows rise – a welcome development for a fund like ours, which invests across the market-cap spectrum and aims to avoid the heavy dividend concentration that characterises the UK equity arena.

5. Even the US is paying attention

Crucially, the recent turnaround has not gone unnoticed in the US. Speaking in late April, Larry Fink, co-founder and CEO of BlackRock, said the world’s biggest asset manager was busily acquiring billions of pounds’ worth of UK assets “across the board”³.

“I have more confidence in the UK economy today than I did a year ago,” Fink declared. Is it too fanciful to imagine him staring forlornly at our carriage, desperate to participate in our journey? Conductor, stamp this gentleman’s ticket with all speed. Step aboard, Larry, and enjoy the ride.

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¹ See, for example, BBC News: “US loses last perfect credit rating amid rising debt”, May 16 2025 – https://www.bbc.co.uk/news/articles/c4ge0xk4ld1o

² See, for example, FundCalibre: “What you need to know about the equity income landscape”, May 13 2025 – https://www.fundcalibre.com/what-you-need-to-know-about-the-equity-income-landscape

³ See, for example, Reuters: “BlackRock CEO boosts holding in ‘undervalued’ UK assets”, April 24 2025 – https://www.reuters.com/business/finance/blackrock-ceo-buying-undervalued-uk-assets-times-reports-2025-04-24/

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For professional clients only. The value of equities (shares in companies) may fall as well as rise. As a result, investors can lose some or all of their investment. Investment in smaller companies can involve greater risk than is generally associated with investment in larger, more established companies.

This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.