UK funds sector review – FTSE 100 leads as UK market performance diverges

The newly appointed Prime Minister has ruled out an early election, instead pledging to govern based on the 2024 manifesto that brought Labour to power. Given Labour’s lacklustre polling numbers and the rise of Reform, this decision was widely expected.

Housing remains a key issue for both the government and voters. Despite former Prime Minister Keir Starmer's pledge to fast-track planning approvals and deliver 1.5 million new homes over five years, progress fell short of expectations.

Burnham has promised to build on these commitments, announcing:

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In terms of foreign policy, Burnham has also signalled a desire to work more closely with the EU and build on Starmer’s progress. However, managing the UK's relationship with US President Donald Trump is likely to prove more challenging.

Although Burnham agrees that maintaining a strong relationship is important, he has also indicated that he would be prepared to take a firm stance when the two countries disagree.

Finally, Burnham has promised to honour Labour's pledge not to increase income tax, VAT, or National Insurance. But he does believe that there’s room for manoeuvre in other areas. He may need to explore these options, as the Office for Budget Responsibility has stated that spending cuts or tax rises equivalent to £100bn per year will be required by 2030/31 to stabilise public finances.

How has the UK stock market performed?

The last 12 months have been positive for UK markets. However, the beginning of 2026 has been very volatile thanks to higher oil prices stemming from the war between the US and Iran. As a result, performance has varied across different areas of the market.

The FTSE 100 – representing the largest companies in the UK – rose 23.6%* during the last year. That comfortably beat both the FTSE 250 ex Investment Trusts and FTSE Small Cap ex Investment Trusts indices, which returned 6.6% and 7.6%, respectively.

This is a useful reminder that the stock market can perform differently from the economy. The FTSE 100 contains many companies that carry out business all over the world so are less reliant on a strong UK economy to succeed.

There was also a stark difference in performance between growth and value companies, with the latter outperforming significantly.

For value investors, banks continued their strong performance, as interest rates remained elevated with the expectations of inflation staying higher for longer. Basic materials also performed well, led by the mining companies like Rio Tinto and BHP that have benefited from higher commodity prices.

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How have the UK Wealth Shortlist funds performed?

Our Wealth Shortlist selections delivered mixed performance during the past 12 months, though we tend to expect this from such a wide range of funds.

Investing in these funds isn’t right for everyone. Investors should invest only if the fund’s objectives align with their own and should make sure any new investment forms part of a long-term diversified portfolio.

For more details on each fund and its charges and specific risks, see the links to their factsheets and key investor information.

UK Growth

The top performing UK Growth fund on the Wealth Shortlist was the L&G UK 100 index, returning 24.2%.

The fund provides a low-cost and straightforward way to invest in the FTSE 100 – an index of the largest companies in the UK. Legal & General have been running passive funds for more than 30 years and are one of the largest providers of such funds in the UK. The team’s process, combined with low charges, should help the fund to efficiently track the index.

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The weakest performer was Aegon Ethical Equity, which returned -1.0%.

Managed by longstanding manager Audray Ryan since 1999, the fund invests in UK companies using an 'exclusions-based' approach, so it doesn’t invest in companies involved in activities deemed unethical.

Given that the fund excludes large parts of the market, performance at times can look very different to the benchmark and peers. The fund has had no exposure to several sectors that have done well recently; this includes defence companies like Rolls-Royce, oil and gas companies BP and Shell, and some banks like HSBC.

Investors should note that the manager also invests in some higher-risk smaller companies.

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Janus Henderson UK Responsible Income: May 2026 fund update

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UK Equity Income

Artemis Income was the best-performing of the UK equity income funds on our Wealth Shortlist, returning 14.8%. The fund is managed by Adrian Frost, Nick Shenton and Andy Marsh.

The managers aim to outperform the FTSE All-Share over the long term, investing mainly in larger companies, while providing a growing income and a dividend yield above that offered by the index.

We have a high level of conviction in all three co-managers, who have experience investing through good times and bad, and we regard them as one of the best teams in the business.

The weakest of our UK Equity Income fund selections was Janus Henderson UK Responsible Income, which returned 10.7%.

The fund has been managed by Andy Jones since 2012 and aims to provide income as well as capital growth over the long term.

Given that the fund invests with a responsible mandate, it excludes large parts of the market, and performance at times can look very different from the benchmark and peers as a result.

Recently, the fund has had no exposure to several sectors that have done well, including defence companies like Rolls Royce and some banks such as HSBC. It also invests in small companies, which can increase risk.

Both the Artemis and Janus Henderson funds can take charges from capital. That helps increase the yield but weighs on capital growth.

UK Small & Medium-sized Companies

The strongest performer in the UK Small and Medium-sized section of the Wealth Shortlist was the HSBC FTSE 250 index fund, which returned 10.1%.

The fund offers a simple, low-cost way to track the FTSE 250 and is run by HSBC, which has run index trackers for more than 35 years. The fund’s low charges should continue to help it track the FTSE 250 Index closely. The fund also participates in securities lending, which can enhance returns but adds risk.

The worst-performing of our selections in the sector was the Artemis UK Smaller Companies fund, which returned -4.2%.

The fund aims to grow an investment over the long term by investing in the smaller parts of the UK stock market. Our analysis suggests that during the last 12 months, the fund’s investments in technology and industrial companies have been particularly painful.

Investing in smaller companies is higher risk, and investors should invest for the long term and be prepared for volatility along the way.