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Because the FTSE 100 lastly cleared the ten,000-point milestone in early 2026, many traders may need assumed the ‘easy’ cash has already been made in UK shares. I don’t suppose that’s the case.
As a result of whereas the Footsie soars, the valuation hole between the London Inventory Change and far of the remainder of the world stays noticeable.
The FTSE 100’s buying and selling at 18 occasions earnings versus almost 30 for the S&P 500 and 19 for the STOXX Europe 600. And its trailing yield is 3.1% subsequent to a meagre 0.9% for the S&P 500 and a couple of.5% for Europe’s index.
In accordance with AJ Bell, traders may very well be in line for a 3.4% yield from the FTSE 100 in 2026. And dividends are anticipated to be supported by complete pre-tax earnings of £260bn for FTSE 100 corporations, which if achieved would beat the earlier 2022 report of £231bn.
FTSE 250
In the meantime, the FTSE 250 incorporates some large yields and really low-cost shares. Over 10 shares are yielding 9%+!
Admittedly, extra of those corporations depend on the misfiring UK economic system. However there are numerous world dividend-paying corporations within the mid-cap index getting thrown out with the bathwater. So, potential alternatives there.
British billionaire Jim Mellon has been loading up on low-cost renewable vitality trusts which are yielding 10-12%. So there is also earnings alternatives on this area (although future regulatory modifications might harm these trusts’ money flows).
Small-cap alternatives
It’s the identical script with UK small-caps, which have been missed for years now.
Traditionally, these have traded at a premium to large-caps as a result of they’ve increased development potential. However in 2026, many are actually buying and selling at a reduction to FTSE 100 blue-chips, which is a uncommon historic anomaly.
Some high quality UK small-caps are yielding 4% to six%, regardless of nonetheless rising earnings strongly.
As Ken Wotton, supervisor of the Gresham Home UK Smaller Corporations fund, factors out: “There’s a value play on the UK for investors, and within that there’s a value play at the small and mid-cap end of the market”.
The Gresham Home UK Smaller Corporations fund has £265m-cap Brooks Macdonald Group (LSE:BRK) as its high place. It is a wealth administration agency that final 12 months offered off its worldwide enterprise to focus purely on the UK.
This deal with one market provides danger, after all, particularly given the excessive ranges of competitors. However the UK’s additionally a structurally rising market as a result of nation’s ageing inhabitants and sophisticated pension guidelines.
Brooks Macdonald gives a spread of funding administration companies to non-public high-net-worth people, pension funds, and establishments. It just lately moved from AIM to the primary market, which ought to put it on the radar of extra traders.
Certainly, that is what the fund above appears to be anticipating. In September, it wrote that Brooks Macdonald is “a leading player in the highly fragmented wealth management sector and is materially undervalued relative to precedent M&A transactions in the space.”
With Brooks Macdonald’s shares buying and selling at simply 11 occasions ahead earnings whereas providing a 5.4% yield, this small-cap dividend alternative could also be value exploring additional.
Silly takeaway
Placing all this collectively, at present may nonetheless be a once-in-decade probability to lock in some uncommon passive earnings alternatives, notably throughout the FTSE 250 and small-cap area. Many UK shares right here look undervalued.
