UK stock market investing: 5 British ISA fund ideas

Important information - 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.

UK dividends jumped by over a fifth in the first quarter of 2026, according to research by Computershare, which said the outlook was “very positive” for the second quarter too. Top dividend payers include AstraZeneca, Shell, and British American Tobacco.

It is important to note, however, that just a handful of stocks are responsible for the lion’s share of payouts. In the first quarter of the year, five companies paid half of all UK dividends. While concentration risk is often associated with markets such as the US, it is a feature of the UK market too.

Cheap stocks

One reason the FTSE 100 has a relatively high dividend yield is that many of its companies are mature and very cash generative. But it also reflects low share prices.

This is obvious in other valuation metrics too. For example, the UK trades on a forward price/earnings (P/E) ratio of just 12.8, compared with 22 for the US. This means investors are willing to pay a far higher price for future profits from American companies than from British ones.

Ultimately, when you’re assessing any valuation metric, you are making a call about growth. If investors think a region has the capacity to grow very fast, they will attach a higher P/E multiple to it. However, some people think the UK discount has become excessive.

The recent wave of takeover activity backs up this view. Tate & Lyle, Schroders, Intertek and Beazley, have all been plucked off the market this year by private equity firms or rival businesses, and easyJet and Segro are being circled. These buyers appear to see more value in UK companies than the stock market does.

• Read: 5 stocks to watch in August

On the flip side, although the UK looks undervalued compared with international rivals, it does not look overly cheap versus its own history.

Potential AI hedge

The FTSE 100 has a very different sector mix from other markets. This is one of the reasons it has been unloved in recent years - it is more heavily weighted towards old economy sectors than technology. Technology represents just 2% of the FTSE 100 versus almost 40% of the S&P 500.

However, this may turn out to be a blessing in disguise if excitement around artificial intelligence starts to wane. Industries such as energy, utilities, consumer staples and healthcare tend to be more defensive than technology.

So far this year, we have already seen a slight rotation from growth to value as rising interest rates have reduced the appeal of unproven earnings in the future and made the UK’s cash generative stocks look more compelling. Conflict in the Middle East - and the resulting rise in the oil price - has also stoked interest in energy giants.

UK fund ideas

Deciding where best to invest in the UK can be a challenge, given the vast array of funds, investment trusts and ETFs currently available.

Fidelity’s Select 50 contains a manageable list of five favourite UK funds, each designed to produce growth, an income, or a combination of the two. It encompasses both actively managed and tracker portfolios.

Here, we have pulled together a summary of the Select 50 views. Please note that dividend yields are not guaranteed.

FTF Clearbridge UK Equity Income Fund

This is one of three actively managed UK funds on the Select 50 list. It is run by Franklin Templeton and aims to generate more income than the FTSE All-Share Index plus investment growth over a three to five-year period after fees and costs. It pays a quarterly dividend and has a historic yield of 3.6%.

Its holdings include some of the UK’s largest dividend payers, including HSBC, Shell and AstraZeneca, as well as some mid-cap companies. It has an ongoing charge of 0.52%.

• More on FTF Clearbridge UK Equity Income Fund 

Fidelity Special Situations Fund

This fund, run by Alex Wright and Jonathan Winton, takes a contrarian approach and focuses on underappreciated companies. The portfolio is skewed towards medium- and smaller-sized businesses, but big names like Lloyds and AstraZeneca feature among its top holdings too. It currently leans towards industrial stocks, and the consumer discretionary sector. It has a historic yield of 2.4% and an ongoing charge of 0.91%.

• More on Fidelity Special Situations Fund

Liontrust UK Growth Fund

As its name suggests, this fund invests primarily in companies listed in the UK, although it may invest smaller amounts into companies listed outside the UK too. The fund has a 'quality' bias, leading it to companies that tend to be more expensive than others but with the potential for good growth. This approach has struggled in recent years, but could suit a long-term investor and blends well with a 'value' fund such as Fidelity Special Situations.

The historic yield has been lower than the other funds at 2.1% and the fund has an ongoing charge of 0.83%.

• More on Liontrust UK Growth Fund 

iShares Core FTSE 100 UCITS ETF

This is a passive fund, also known as an index tracker. It holds the individual constituents of the FTSE 100 in the correct amounts to track the index. Fidelity’s experts note that BlackRock, which runs the fund, is a seasoned investor in passive funds and that this fund’s charges are extremely low. As such, it may suit cost-conscious investors with a longer time horizon. The yield is 2.9% and the ongoing charge is just 0.07%.

• More on iShares Core FTSE 100 UCITS ETF

Vanguard FTSE 250 ETF

This is another index-tracking fund, but it invests in mid-sized companies listed in the UK. Vanguard is an expert in index tracking and this fund is well priced, with an ongoing charge of 0.1%.

• Read: What is the FTSE 250? The basics

It is focused on mid-sized companies and represents a sensible choice on the riskier side of a portfolio. Mid-sized companies can be more volatile and riskier than their larger counterparts. The yield sits at 3.6%.

• More on Vanguard FTSE 250 ETF 
• More on the Select 50: our favourite funds - selected by experts