The UK stock market is often dismissed as stagnant, but as Simon Murphy, manager of the VT Tyndall Unconstrained UK Income fund explains, that perception doesn’t tell the full story.
In conversation with FundCalibre’s Darius McDermott, Simon discusses the surprising strength of the FTSE, the undervalued potential of mid and small-cap companies, and why he believes the UK economy is far more resilient than many assume. They also look ahead to the upcoming Budget, potential tax changes, and what all this could mean for investors.
Why you should listen to the interview: With insights on valuations, domestic opportunities, and industrial recovery themes, this is a must-listen for anyone rethinking their UK investment outlook.
This interview was recorded on 1 October 2025. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview – see link below.
Interview highlights:
The UK market isn’t as weak as it seems
“Just focusing on the FTSE 100 for a minute, you’re right. For the first three quarter of this year, in total return terms, it’s up nearly 18% in Sterling. That’s outperforming the Dow Jones, the S&P, it’s broadly in line with the Nasdaq. And actually, if you were to convert that into dollars, if you’re an international investor, the FTSE 100 is up, in dollars, nearly 25% this year.
“In general, the UK’s been a pretty unloved market, but actually performance wise, certainly at the larger end of the spectrum, things are going pretty well, even though people haven’t really been shouting about it and the flows have still been negative. The large-caps have done pretty well.
“Large-caps as you know are very international in nature, roughly 75% of FTSE 100’s earnings come from overseas. They’re not really focused so much on the domestic UK economy. And that’s where the big difference is, certainly in perception, but there’s some truth in it as well.”
The state of the UK economy
“I feel like I’ve been arguing this sort of story for about two or three years really about the relative resilience of the UK economy. And I think in fairness, I think the economy has proved to be quite resilient over the last few years compared to what seems like expectations.
“People have been desperate to almost predict a recession every five minutes, it seems to me. But the reason I think it’s been resilient, and I think it will continue to be resilient is because we’ve got some quite interesting characteristics in a difficult environment.
“What I mean by that is when you look at it there’s three big parts to the economy broadly. There’s the private sector in terms of consumers, there’s the private sector in terms of companies, and then there’s the government sector. Now both sides of the private sector are in reasonable health. Consumers have very strong balance sheets. They’ve been saving a lot of money, so savings rates are very high. We’ve still got relatively low unemployment, certainly in the last year or two. We’ve had decent wage growth and higher than inflation, albeit that wasn’t the case previously. So consumers actually are in an okay place. What they lack is a bit of confidence to go out and spend materially. But they’ve got the wherewithal to do so.”
What to expect from the upcoming Budget
“So then it comes to down to what will they do in the budget? And I suspect actually given the level of pessimism that’s out there and the level of uncertainty and negativity and fear, I suspect from a stock market event there’s a reasonable chance that the fear ends up being worse than the reality.
“So I suspect we will see some tax increases, that’s pretty inevitable, but I think they may be somewhat less aggressive than people are fearful of at the moment. And again, stock markets are all about pricing in what they think’s going to happen at the margin. So if at the margin, whatever they choose to do in the budget in November is somewhat less draconian than we’re all sort of worried about today, the stock market will take that in a incrementally positive way.
“So again, I don’t want to appear panglossian by any means. We have some very rare issues, particularly in the government finances or the way they want to manage them. But I think the stock market is well aware of that. I think perception and sentiment is already extremely negative. And I think there is a chance that we end up being surprised a little bit on the positive side as we sort of roll through from the budget and into early 2026.”
Finding mid-cap opportunities
“We do have quite a lot of exposure to the domestic economy. And again, I hope for the reason I outlined, which is that the valuations are incredibly attractive because pessimism is where it is and those businesses are generally speaking, trading a bit better than people think. DFS Furniture, for example – a sofa is the ultimate discretionary big ticket item, right? DFS have just seen 10% year on year order intake growth, both in the first half of their financial year and the second half of their financial year. So that’s a nice illustration of the fact that there is still some activity going on out there.”
Conclusion: Despite persistent headlines of economic weakness, Simon Murphy argues there’s more strength beneath the surface of the UK market than many realise. From robust corporates to recovering industrials, the case for mid-cap investing remains compelling for long-term investors.
Main image: laura-chouette-M5xM4Z8VcWA-unsplash
