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.

A balanced stock market portfolio will include shares from a wide range of countries. This could be through a global fund, such as the L&G Global Equity Index fund from our Select 50 list of favourite funds.

But it only allocates 3.6% to UK shares. Some investors want more of their money in their home country, perhaps because it's more familiar and easier to keep up with the latest developments. Active DIY investors may also increase allocation to some countries because they believe they are particularly cheap or have strong growth potential.

The recent relative performance of UK shares will also have caught the attention of investors, with a particularly strong run in February.

The FTSE All-Share has returned 6% so far this year (to 8.4.26) despite the recent volatility. That compares to a 1% loss for America’s S&P 500 and a 3% gain from Europe’s Eurostoxx 600.

With income included, the FTSE All-Share has returned almost a fifth in the past year, compared to 16% for the US and 18% for Europe.

Below, we highlight issues for investors to consider, focus on funds from our Select 50 list and point to the funds that have been in most demand in our ISAs and pension products.

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What next for the UK?

The conflict in the Middle East is bad news for an already weak UK economy. It raises the risk of a material slowdown or recession and points to persistent inflation and higher-for-longer interest rates. The outlook for the housing market, a key driver of sentiment, has deteriorated, writes Investment Director Tom Stevenson.

This will show up in different ways in different parts of the stock market. The FTSE 100 is relatively resilient during market corrections thanks to the defensive bias of its constituents and its more international focus. A high energy weighting offsets domestic cost of living pressures in a $100 oil environment.

The FTSE 250, by contrast looks exposed. It is more cyclical, weighted to sectors like consumer discretionary and housebuilders. It is also more domestically focused. Higher for longer interest rates hit mid-caps harder than blue chips. And the index is more affected by the UK’s unloved market status, with persistent outflows in recent years.

The net effect of all this has been dramatic underperformance by the mid-cap index. Since 2021, the FTSE 250 has gone sideways while the FTSE 100 has risen by more than 30%. It is hard to see this set-up changing in the short-term. 

The UK does have some positives. First, it is cheap, although less so than it was three years ago. The FTSE 100 bottomed out at around 8.5 times earnings in 2022 and it now stands at just over 13, which is in line with its long-term average. This, however, is still considerably cheaper than the US. The FTSE 250 is cheaper still, at around 11 times earnings. (See below for more on valuations).

Stock-pickers continue to find attractive companies in the UK in areas like advanced manufacturing and engineering. And the UK will continue to look attractive to investors seeking to diversify out of the US. 

How cheap is the UK?

The British market has been cheap for a long while and it remains cheap compared to some other markets. This view is based on various measures. The price-to-earnings ratio is one common gauge of value. It shows the FTSE All-Share trading at 13.5 times forecast earnings for 2026 (as of 16 March). In contrast, Europe is on 15.2 and the US is on 21.1. In other words, British shares are 37% cheaper than those in the US on this measure.

Another measure of value is income dividend yield. The UK offers a yield of 3.4%, far higher than America’s 1.5% and above the world average of 2.1%.  

British shares have been cheap since the Brexit vote of 2016. The valuation gap with the US only widened as its ‘Magnificent 7’ stocks - the likes of Nvidia, Tesla, Meta and Apple - have led a broader technology stock rally. Neither the UK nor Europe have been blessed with such dominant market leaders. 

An important caveat is that cheap markets can remain cheap for extended periods requiring patience from investors. But at least you can collect a decent income yield while you wait. 

UK stock market: know what you're buying:

The FTSE 100 has a very different sector mix from the US market. Financials account for around 26% of the index, followed by industrials (15%), consumer staples (15%), healthcare (14%) and energy (9%), according to Siblis Research (31 December 2025).

By contrast, the US stock market is dominated by information technology companies. Investing in the UK therefore means greater exposure to more traditional, generally slower-growing sectors, which have historically tended to generate and distribute higher levels of income. 

It’s also worth noting that investing in the FTSE 100 is, to an extent, an international investment. Many of the largest London-listed companies - such as BP and GlaxoSmithKline - generate significant revenues overseas and operate on a global scale. The FTSE 250, in contrast, gives more of a domestic exposure. More is explained here: What is the FTSE 250? 

How much of a portfolio should be in the UK?

The British stock market may be good value, but an allocation should remain modest for those wanting to retain a balanced and diversified portfolio. As mentioned, the typical global index fund, a common holding in many portfolios, only has a 3.6% allocation to the UK. 

It is also worth considering the effect of currency risk. If you invest in standard US funds, your returns will be decided by the progress of the stock market but also by any swing between the pound and the dollar. If in doubt about investment choices, speak to a financial adviser.

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 or 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, as well as yields and costs, all correct at time of publication. The income yields are not guaranteed.

1. The FTF Clearbridge UK Equity Income Fund is one of three actively managed UK funds on the Select 50 list. This fund, run by Franklin Templeton, aims to generate a higher 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 3.7%, which is not guaranteed. Its holdings include some of the UK’s largest dividend payers, including Unilever, Shell and AstraZeneca, as well as some mid-cap companies. It has an ongoing charge of 0.52%.
2. The Fidelity Special Situations Fund, run by Alex Wright, takes a contrarian approach and focuses on underappreciated companies. Owing to this, it offers an exposure to companies often not covered by other popular UK funds. The fund’s largest exposure is to financials, led by holdings in Standard Chartered and Lloyds Banking Group. It has a historic yield of 2.6% and an ongoing charge of 0.91% (with a 0.05% Fidelity discount).
3. The Liontrust UK Growth Fund invests primarily in companies listed in the UK, although it may invest smaller amounts into companies listed outside the UK too. The fund's approach has a 'quality' bias, leading it to buy companies that tend to be more expensive than others but with the potential to continue growing quickly. Read more about quality investing. The historic yield has been lower than the other funds at 2.1% and it has an ongoing charge of 0.83% (includes a 0.1% discount). This approach blends well with a 'value' fund such as Fidelity Special Situations.
4. The iShares Core FTSE 100 UCITS ETF 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 cost are extremely low. As such, it may suit cost-conscious investors with a longer time horizon. The yield is 2.95% and the ongoing charge is 0.07%.
5. The Vanguard FTSE 250 ETF is an index-tracking fund which invests in mid-sized companies listed in the UK. Vanguard is an expert in index tracking and this fund is well priced. 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 is 4.05% and the ongoing charge is 0.1%.

• More on the Select 50: our favourite funds - selected by experts.

Which UK funds have been best sellers on the Fidelity platform?

Two UK funds made the top 10 of best-selling ISA funds in 2025 - the Fidelity Special Situations Fund at sixth and the Legal & General UK Index Trust at seventh. 

Special Situations is also the second best seller so far in 2026: Top 10 best-selling ISA and SIPP funds of 2026

• Read: Top 10 best-selling ISA and SIPP funds of 2025

How to invest

Any of these funds can be held in an ISA or in our personal pension, also known as a SIPP. Or in the junior versions of these accounts. Here’s some links to helpful information:

• Fidelity Stocks and Shares ISA
• Fidelity Junior ISA 
• Fidelity Self-Invested Personal Pension (SIPP)

Source:

^1,2 Factset, 1 April 2026, returns priced in sterling.