"Over the past decade, the UK equity market has undergone a prolonged period of relative underperformance, with Brexit acting less as a root cause and more as a powerful accelerator of existing structural trends. Prior to 2016, the UK market already faced headwinds; declining domestic pension demand, a sector mix skewed toward old-economy industries such as energy and financials, and limited exposure to high-growth technology companies. These factors left the UK poorly positioned for a decade dominated by US-led growth stocks. Brexit acted as a confidence shock at a critical moment, amplifying these weaknesses and accelerating capital reallocation away from the UK.
"The relative earnings growth and multiple expansion of the US technology sector has meant that the US has become the dominant allocation within the MSCI All Country World Index. For instance, the UK's weight within the MSCI ACWI Index has reduced from around 7% in 2015 to approximately 3.3% at the end of 2025. The increasing shift towards passive, index-tracking funds has been a major driver behind this trend, as passive portfolios move in line with global indices, reducing the weight of UK stocks from previously unrepresentative levels.
"When comparing the UK market with the US, the UK remains heavily weighted towards value sectors such as financials, energy and consumer staples, with relatively little exposure to technology stocks. As tech-heavy global indices have outperformed, the UK has lagged, and this persistent underperformance has led many investors to reconsider their UK home bias.
Institutional investors have accelerated the shift:
"We are seeing similar trends within the institutional market, with many of our UK defined benefit (DB) and defined contribution (DC) scheme clients moving from a significant home bias to a more global approach. This has reduced the reliance on UK equities as a key driver of returns within equity portfolios.
"An additional headwind has been the broader de-risking of pension schemes away from equities. This trend has accelerated in recent years as many schemes approach their long-term funding targets and transfer liabilities to insurers. These transactions are typically backed by a mixture of cash, gilts and corporate bonds rather than equities. As a result, allocations to UK equities within domestic institutional portfolios have been in long-term structural decline, reaching historic lows in recent years.
Implications for long-term asset allocation:
"For Isio, our long-term strategic asset allocation within equities is designed to provide diversified exposure broadly in line with the investable global equity universe. We do not believe there is a strong rationale for moving significantly away from a broad market-cap benchmark, such as the all-world investable market universe, and our allocations reflect this view.
"We believe it would take an allocator with a significant amount of skill, resources and luck to consistently make successful macro allocation calls over long periods. As a result, we favour maintaining broad global diversification rather than making substantial active bets on individual regions or markets."
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