The elite group of British shares outperforming the UK stock market

The UK stock market might be unloved but there are shares delivering strong returns. These include well-known British companies trading at or near record share price highs.

The US market has acted like a magnet in recent years and pulled investors away from the UK with the lure of fast-growth technology companies. A gloomier US economic outlook and rich equity valuations that side of the Atlantic suggests it might be time to add a stronger British flavour to an ISA or pension as the London market is full of stocks on attractive valuations.

The FTSE All-Share index is a benchmark for the UK stock market and has generated 82% total return over the past 10 years, which factors in share price gains and dividends. Clever stock pickers could have easily smashed those returns.

Just under half of the FTSE 350 index (150 companies) – which incorporates the FTSE 100 and the FTSE 250 index and contains medium and large-sized companies – has trounced that record.

Examples of UK stocks that have outperformed the FTSE All-Share on a 1, 5 and 10-year basis

Source: AJ Bell, SharePad. Data to 23 September 2024

One third of these UK market-beating stocks haven’t simply had a lucky year. According to analysis by AJ Bell, 51 individual companies in the FTSE 350 index have beaten the total return from the broader UK stock market (as measured by the FTSE All-Share) in each of the past one, five and 10 years. That suggests they’ve been doing something right with their business.

A further 26 stocks beating the FTSE All-Share over the past one, five and 10 years are investment trusts. However, the bulk of them have a different benchmark than the FTSE All-Share to reflect their investment focus, such as the global technology sector or the Indian stock market.

The newly appointed Labour government is keen for retail and institutional investors including pension funds to support the UK stock market, and greater awareness of the star UK performers and the plethora of opportunities among a diverse range of businesses could make its job easier. While there is no guarantee this elite group of companies will continue to outperform, their achievements to date are noteworthy.

Household names like food-on-the-go retailer Greggs and lesser-known ones like distribution firm Diploma have made investors a pretty penny over the years. They are examples of Britain’s depth and breadth of quality businesses.

Investors don’t have to choose between the US and UK markets as having a blend of both would help to spread risks.

History suggests a portfolio where all the components don’t move in unison can provide a lower-risk experience for investors. Having certain things go up when others are going down means the investor isn’t risking all of their money on one area. The returns might be lower than if they went all-in on a sector that does very well, but having diversification should mean they sleep better at night.

Adding a blend of UK shares to a broader portfolio means an investor would get exposure to a market that still offers considerable value, particularly relative to the US, and one which is a hotspot for takeovers.

The run-up to the presidential election battle between Kamala Harris and Donald Trump could lead to renewed volatility in the US stock market, providing a further reason to look at UK shares as investors might find less drama this side of the Atlantic. The UK may not have the glamour of the big tech names in the US, but having exposure to more steady-as-she-goes type companies can work wonders for portfolio returns, given a bit of patience.

Five UK stocks with a record of strong returns

BAE Systems

Russia’s invasion of Ukraine has made governments around the world sit up and think more seriously about defence capabilities. That has led to greater spending across the defence spectrum, creating a tailwind for companies like BAE Systems. Greater cybersecurity spending has also been a tailwind for the UK defence champion as it has the strength to flex both its physical and digital muscles.

Bloomsbury Publishing

Bloomsbury Publishing is proof that the public still loves a book, despite it feeling as if everyone is always staring at their phones. It has benefited from publishing titles that readers simply can’t put down. From the Harry Potter franchise to Sarah J. Maas’ big hits, Bloomsbury is a dab hand at spotting talent. It is good at making money from new and old titles, reworking books via new editions and capturing new generations of readers. It has also done well in the education market, diversifying revenue streams and making the business less reliant on a handful of authors.

Greggs

Greggs is a well-oiled machine that’s created a recipe for success. It sells food and drink at affordable prices and in an efficient manner. It continues to innovate and launch new products, keeping existing customers interested and enticing new ones into its stores. Greggs is earning more from existing stores by having them open for longer, while at the same time it continues to open new sites. Behind the scenes, it is reinvesting cash flow into manufacturing, distribution and logistics to support its growth.

Premier Foods

Mr Kipling maker Premier Foods has delivered an exceedingly good performance in recent years, both operationally and with its share price. At one time this was a zombie business thanks to an onerous debt pile. It has resolved the debt problems and is now reaping the benefits of investment in the business to make it more competitive and innovative. Shoppers continue to fill their baskets each week with its brands including Oxo, Bisto, Mr Kipling, Homepride and Paxo. Trends come and go, but these brands are true classics and that gives Premier Foods a big advantage over its rivals.

Tesco

Despite operating in a competitive market, Tesco has held onto the top spot in the UK grocery sector thanks to hard work and determination. Discounters Aldi and Lidl have kept Tesco on its toes and ensured it has never been complacent. Clever use of data analysis via the information collected from Clubcard transactions means it has valuable insight into shoppers’ tastes. It can tailor promotions and push products that have a strong chance of shoppers placing them in their basket.