Home Bias: Why Many British Investors Have Too Much Money in UK Equities

If you’re an investor (or even if you just have a pension through your employer), there is a good chance that a disproportionate share of your money is invested in the UK. Equities (shares in companies listed on a stock exchange) are one of the most important building blocks of any investment portfolio. But where those companies are based matters more than many people realise.

The UK stock market currently represents just 3.4% of global stock market value. In 2008, it was over 8%. In the 1990s, it was above 10%. This decline is partly down to the UK market’s relatively sluggish performance, but mainly reflects the extraordinary growth of other markets, particularly the US, where the dominance of technology companies has driven its share of global indices from around 44% in 2008 to over 63% today. Yet many British investors still hold 20%, 30% or even more of their equity portfolio in UK-listed companies. Research from Janus Henderson, which analysed over 1,200 UK portfolios, found that the average UK equity allocation was around 21%, with many portfolios holding significantly more than this average. That is a meaningful overweight to a small and shrinking corner of the global market. So why does this happen, and what does it mean for your investments?

Why Do We Do It?

‘Home bias’ is one of the most well-documented behaviours in investing, and the UK is far from alone in it. Investors in virtually every country overweight their home market. But the reasons are worth understanding, because they are mostly emotional rather than rational.

Familiarity plays a big role. We recognise the names. We shop at Tesco, bank with HSBC, fill up at Shell. It feels safer to invest in companies we know and use. There is also a long tradition of UK equity income investing. The UK market has historically offered attractive dividend yields, making it a natural home for income-seeking investors and retirees. Currency is another factor. If you spend in Sterling, holding UK assets avoids the perceived risk of exchange rate movements eating into your returns. And then there is simple inertia. Many wealth managers and default pension funds have historically allocated heavily to the UK, and those positions have not always been updated to reflect how the world has changed.

Benchmarks play a role here too. A benchmark is a reference point that investment managers measure their performance against, typically a major stock market index or the average fund in an investment sector. Many UK wealth managers and pension funds have traditionally used UK-focused benchmarks, which naturally anchors their portfolios toward UK equities. Even as the world has changed, these benchmarks have been slow to shift, and many managers continue to follow their weightings out of convention rather than conviction. The industry is gradually moving toward more global benchmarks, but legacy allocations remain widespread.

What Has It Cost?

Quite a lot, as it turns out. Over the ten years to July 2026, the FTSE All-Share has delivered an annualised return of around 5%, while the FTSE All-World (a broad global index) has delivered just over 10% (source: FE). That is roughly double the return, compounded year after year. The main driver has been the explosive growth of the US technology sector, which now dominates global indices. The UK market, with its heavy weighting toward financials, energy and consumer staples, has simply not kept pace. Between 2021 and mid-2025, UK equity funds saw net outflows of over £95 billion as investors increasingly recognised this underperformance and shifted toward global strategies.

That said, it would be wrong to write off the UK entirely. UK equities are currently trading at attractive valuations relative to their long-term averages and relative to the US. In years where ‘value’ stocks outperform ‘growth’ stocks (as happened in 2022 and parts of 2025), the UK has tended to hold up well. Diversification works in both directions.

But UK Companies Are Global, Aren’t They?

This is the most common pushback, and it has some merit. Around 75% of FTSE 100 company revenues come from outside the UK. When you buy shares in Shell, AstraZeneca or Unilever, you are getting exposure to global markets regardless of where those companies happen to be listed.

However, owning a handful of globally diversified UK-listed multinationals is not the same as owning a properly diversified global portfolio. The UK market still has significant sector biases, with heavy exposure to financials, energy and mining, and very little exposure to technology and healthcare innovation. You also miss entire regions and economies. A UK-heavy portfolio gives you almost no direct exposure to the fast-growing companies of Asia, the innovation powerhouses of the US West Coast, or the demographic tailwinds of emerging markets where younger, growing populations are driving consumption and economic expansion.

The Currency Question

Many investors stick with UK equities to avoid currency risk. If you earn, spend and will eventually draw your pension in Sterling, holding overseas investments means your returns are partly determined by exchange rate movements.

This is a valid consideration, but it is often overstated. For one, as we have just noted, many large UK companies earn the majority of their revenue in Dollars, Euros and other currencies, so you are exposed to currency movements whether you realise it or not. For another, holding a globally diversified portfolio actually spreads your currency exposure, which can be a benefit rather than a risk. When Sterling weakens (as it did sharply after the Brexit vote), overseas investments denominated in stronger currencies increase in value when converted back to pounds. For investors who want to manage this more actively, it is possible to use currency-hedged funds that strip out exchange rate movements, although these come with a small additional cost.

The Government Wants You to Invest More in the UK

In an interesting twist, the UK government is actively pushing in the opposite direction to global diversification. The Mansion House Accord, signed by 17 major pension providers in May 2025, commits them to invest at least 10% of their default funds in private markets, with a minimum of 5% earmarked for UK investments, by 2030. The Pension Schemes Act 2026, which received Royal Assent in April, goes further. It gives the government reserve powers to make these targets mandatory if it feels the industry is not making sufficient progress. Following significant opposition from the pensions industry and the House of Lords, the final legislation was substantially watered down. The mandation power is capped at 10% of a default fund (with no more than 5% directed into UK assets), cannot be used before 2028, expires in 2032 if unused and will be repealed entirely in 2035. Despite these safeguards, the principle of government-directed pension investment remains controversial. However, some major investment providers are moving in the opposite direction. For example, Scottish Widows announced in 2025 that it was reducing its UK equity allocation.

The government’s motivation is understandable. It wants pension capital to support UK economic growth. But forcing pension schemes to invest in a specific market or asset class based on political priorities rather than investment merit is a concerning precedent. The primary duty of any pension scheme is to deliver the best possible returns for its members, not to prop up the domestic economy.

What Does a Well-Diversified Portfolio Look Like?

There is no single right answer, but most investment professionals agree that a small UK home bias can be beneficial for a UK-based investor, but the levels of bias seen in many portfolios can be highly detrimental. A small home bias provides meaningful exposure to the domestic market, captures the dividend income the UK is known for, and provides some natural currency matching, while still allowing the bulk of the portfolio to access global growth opportunities.

At NorthStar, our investment portfolios are globally diversified by design. Our equity allocations reflect the breadth of the global market, with exposure to North America, Europe, Japan, Asia and emerging markets alongside a measured UK allocation. We believe this approach gives our clients the best chance of capturing growth wherever it occurs, while managing risk through genuine diversification.

In Summary

Favouring your home market is a deeply human instinct, but it is one that can quietly erode your returns over time. The UK represents a small and shrinking share of the global stock market, yet many British investors remain significantly overweight. While there are valid reasons for holding some UK exposure, an excessive allocation means missing out on the growth of global markets and concentrating risk in a single economy. A well-diversified portfolio spreads your investments across the world, giving you access to a wider range of sectors, economies and opportunities. If you are unsure whether your investments are properly diversified, we would be happy to take a look and help you get the balance right.

If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.

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