UK domestic investment has fallen significantly in the past decades. In part, caused by many well-meant policies and regulations, this has cumulatively resulted in over £1.9 trillion being withdrawn from UK-listed companies. Numerous reforms have been implemented in recent months designed to encourage more domestic investment, which aim to drive growth in the UK economy.

This lack of domestic investment was not always the case. According to the most recent ONS figures, in 1981, UK individuals owned 28.2%, “other” UK holdings, such as pension and insurance funds, owned 68.25%, while foreign ownership was 3.6%. By 2022, those figures were 10.8%, 31.5%, and 57.7%, respectively.

UK individuals and institutions’ ownership of the UK stock market has fallen from 96.4% in 1981 to 42.3% in 2022. Pension schemes’ exposure to equities has been reduced in part by LDI and accountancy and regulatory changes. As a result, UK pension schemes have reportedly dropped their UK equity exposure from about 50% to 4% over the course of this century.

Going global

The UK’s shrinking percental of global indices has further squeezed allocations. For example, in December 2008, the US had a weighting of 44.42%, followed by the Japan at 10.01%, and then the UK at 8.11% in the FTSE All-World index. In July 2025, those weightings were 63.68%, 5.54% and 3.38% respectively. For more information on increasing concentration within global indices, please see this recent article: Concentration Risk | Lipper Alpha Insight | LSEG.

Lipper Research looked at how UK investors’ allocations between UK, US, and global equity funds (summing flows and net assets for these national classifications and their Income variants) have changed over the past two decades.

In 2004, UK investors held £116.96bn in Equity UK and Equity UK Income funds, compared to £18.99bn in their global equivalents, and £14bn in US. UK equities were therefore 78% of the total. In 2024, that figure was 27.3%. The largest change was between 2019 and 2020, when the Covid crisis broke, and UK equity total net assets fell from 53.2% to 43.9% (chart 1).

Chart 1: Global, UK and US equity total net assets (%)

(Click on image to enlarge)

Source: LSEG Lipper

That’s reflected in flows to these classifications (chart 2). Between 2004 and July 2025, global funds attracted £102.62bn, and US funds £31.65bn, while their UK equivalents have seen outflows of £101.99bn. That is heavily skewed to the period from 2021, where UK funds shed £95.62bn.

Chart 2: Global, UK and US equity fund flows (GBP bn)

(Click on image to enlarge)

Source: LSEG Lipper

The UK, which is a value-tilted market, has suffered from the outperformance of tech stocks as equity markets rebounded from the global financial crisis, and investors piled first into the FANGS pre-Covid, then into the Magnificent Seven. This is what has caused the US as a proportion of global indices to balloon.

While UK equity funds have outperformed year to date and in 2022, they have underperformed US equity funds over 17 of the past 20 full years, and 12 out of 20 versus global funds.  The correlation of US and global returns will have increased along with the former’s weight in global indices.

Over the past two decades, that annualised performance has made a significant cumulative difference (chart 3). Clearly, a “more globally diversified approach” to capture “more growth opportunities”—as one pension fund provider recently put it when announcing their shift from UK to global equities—has paid off, particularly in relation to the US from 2012.

Chart 3: Equity Global, UK and US cumulative performance, July 2005-July 2025 (%)

(Click on image to enlarge)

Source: LSEG Lipper

Are we at a turning point? After all, in the words of Herb Stein, if something can’t go on forever, at some point it will stop. With the UK capital markets reform agenda addressing the structural headwinds to UK equity allocation, combined with relatively attractive UK equity valuations and good YTD performance, any significant inflows could help foster a positive feedback loop between performance and flows.

There are, of course, many “what ifs?” here. When it comes to identifying such a turning point, that ever-irritating question— “are we there yet?” —remains devilishly tricky to answer.

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