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It was a bumper year for stock markets globally and the surprise, perhaps, is that the FTSE 100 index more than kept up. The London market has sometimes been derided as lacking dynamism – the hedge fund manager Paul Marshall called it the “Jurassic Park” of exchanges a few years ago – but its main index enjoyed its best 12 months since 2009. The Footsie didn’t quite make it to the round number of 10,000 but still improved by 21.5%, slightly outperforming the S&P 500 index in the US.
How did that happen amid weakening UK growth, pre-budget chaos and general gloom? The short answer is that a stock market index reflects only its constituent parts. It is not a symbol of national economic virility. That is especially true of the internationally flavoured Footsie, whose members make about three-quarters of their combined revenues overseas.
The tale of 2025 was one of helpful breezes blowing through many of the most important sectors. Defence stocks enjoyed commitments by Nato’s western European members to spend more heavily on equipment. That assisted companies such as Rolls-Royce, whose remarkable run has taken the shares from sub-100p in 2022 to £11-plus today. Banks have had near-perfect conditions of low defaults and falling interest rates. The bill (for some) from the car finance scandal was brushed off easily.
Global mining companies, which are still a significant slice of the Footsie, enjoyed the gold-inspired rally in everything related to precious metals plus the demand for copper that comes with energy transition and electrification. The best-performing share in the index was Fresnillo, a Mexico-based silver miner, up almost fivefold. Over in pharmaceuticals, Donald Trump’s bark on tariffs and prices proved worse than his bite. AstraZeneca, the most valuable component of a value-weighted index, rose almost 30%.
Meanwhile, National Grid and SSE, two heavyweights in UK energy infrastructure, benefited from regulatory funding for the upgrade of the transmission network. Virtually the only “problem” stock at the top end of the index was Diageo, the Johnnie Walker and Smirnoff drinks maker, which was mired in the related issues of a weak global spirits market and boardroom upheaval.
Sue Noffke, the head of UK equities at the fund manager Schroders, makes the point that the Footsie’s rise should not be viewed purely as a one-year phenomenon. Go back three years and the average investment return including dividends has been 14% a year for a cumulative return of 48%.
A cheap starting point is obviously one factor. Even as late as spring 2024, the Footsie was priced at just under 10 times its predicted earnings for the next year, extremely low by historical standards.
Noffke also highlights corporate self-improvement – “companies doing it for themselves” – and the role of share buybacks. There is a long list of companies that can be seen as getting stricter in their capital allocation in pursuit of better returns, and being prodded by shareholders to do so.
Unilever demerged its ice-cream division as Magnum in 2025, echoing GSK’s separation of its consumer products division as Haleon in 2022. The industrial heavyweight Smiths Group is breaking itself up. BP, after years of flip-flopping, is “pivoting” away from its low-return renewables investments. Anglo American has engaged in a multiyear restructuring that ended in a well-received $50bn (£37bn) merger with the Canadian rival Teck Resources. AB Foods is contemplating splitting the discount retail chain Primark from its food and ingredients businesses.
The buyback angle represents a shift in thinking in London. In the old days, dividends were a priority, which was why a core part of Marshall’s dinosaur thesis was that London’s fund managers are obsessed with income rather than growth. Now buybacks, which offer more bang for the same buck when – critically – the shares are cheap, are a greater part of the mix. In any case, the idea that UK investors set the tone is probably out of date: US funds own more of the Footsie than the locals these days.
Noffke calculates that 55% of larger UK companies have bought back at least 1% of their shares in the past 12 months, compared with 40% in the US. Shell has bought back more than 20% of its equity since 2020, for example. “The UK stock market has moved on from being the dividend yield capital of the world,” she argues. “It’s still attractive on dividend income, but it’s not so standout. It has now moved to become the share buyback capital of the world.”
Therein – maybe – lies a path for an image overhaul for the London stock market. The old complaints about the dearth of new arrivals and the lack of whizzy US-style tech and AI stocks are still heard. But investors ultimately care about valuations and returns.
Noffke puts the appeal of the UK market like this: “We have a different sectoral mix that is not dependent, or wholly dependent, on an AI thematic. We are cheap. We are cash rich. We’re buying a lot of shares back, and are quite shareholder friendly. And we’re seeing a lot of companies that, through a combination of top-down from management and bottom-up from the investor base, are showing more grip and more ambition.”
The Footsie still has to keep going in the same fashion. The concentration in its makeup at the top end could work against it if a few important sectors go into reverse; and the relative lack of tech stocks may eventually become a bigger problem. But 2025 continued a good run. The dinosaur isn’t extinct yet.
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