Investors in the United Kingdom have long been in awe of tech-heavy US stocks and shares, but could ISA holders benefit from taking a more domestic approach to portfolio management? There’s plenty of reason to maintain an emphasis on US markets. After all, the recent artificial intelligence boom has disproportionately affected stocks and shares on the United States’ S&P 500 index, while UK firms have remained largely undervalued by investors.
But at a time when geopolitical uncertainty is having an impact on US markets, is it still wise to prioritise investments from across the Atlantic? Or can UK-oriented strategies offer sustainable returns in the long term?
Finding Value in the UK
The United Kingdom has long struggled to attract leading firms to list domestically. The New York listing of Cambridge-based semiconductor firm ARM in 2023 highlights that the lure of the US remains strong for companies, thanks to more attractive terms and less red tape. Factors like Brexit and a relatively small volume of investors have inhibited the ability of firms to raise capital in the UK compared to the US.
The more exciting and competitive markets of the United States may attract more investors, but they offer fewer guarantees of growth. According to Trustnet data, UK equity fund managers have almost a 50% chance of picking stocks that have made money so far in 2025, while US equities have struggled to deliver the same positive returns.
Only 37% of stocks within the S&P 500 provided a positive total return (share price gains plus dividends) in the year up to the 25th of April. Whereas 62% of the FTSE 100 and 41% of the FTSE 250, or 47% of the FTSE 350, offered positive returns over the same period.
Because of their weaker appeal, UK stocks have also been relatively cheap for a long time on the international stage. To illustrate this, the price-to-earnings (P/E) ratio of the FTSE 100 was 11.9 times higher than its forecast earnings. This P/E is significantly lower than the 21 recorded in the US and even 13.9 in Europe. To summarise, UK shares were 43% cheaper than their US counterparts moving into Q2 2025.
What does this mean for ISA investors? For those looking to build their funds in a relatively risk-averse and sustainable way through flexible Stocks and Shares ISAs, investors may find that they can achieve their financial goals by looking to the United Kingdom. However, it’s also worth noting that British companies generally earn less money, so their lower share prices may not necessarily pass through to a lower P/E ratio.
Should Investors Focus on the US?
Even if UK stocks and shares align well with your investment goals, retaining a focus on US markets should be a priority. The S&P 500, which is comprised of some of the world’s largest tech firms, has posted a 32% total return in 2023, followed by a 22% return in 2024. Even if geopolitical uncertainty pushes returns lower in 2025, the index’s ability to grow exponentially during bull markets is too good to ignore for ISA investors.
US stocks were the best performers for six of the past seven years. In comparison, the MSCI Europe ex-UK index returned 1%, highlighting the stark differences in performance of late. While US stocks have been facing the threat of economic struggles and uncertainty under President Trump, the sheer mass of the markets means that the United States remains a major player in the burgeoning tech landscape at a time when artificial intelligence investment is booming.
Crucially, Q4 2024 saw the main US blue-chip index increase 17% in earnings, representing its highest level in three years. Nearly 80% of companies exceeded earnings estimates, while the financial sector was the top-performing industry.
When building your Stocks and Shares ISA, it’s certainly worth maintaining a level of exposure to the high-growth potential of US stocks, particularly the Magnificent Seven collective of Apple, Amazon, Alphabet, Nvidia, Tesla, Meta, and Microsoft, which represent around one-third of the S&P 500 and are responsible for much of its growth in recent years.
The UK Deserves Exposure
Despite the United States’ clear track record for facilitating consistent growth for ISA investors, the United Kingdom may have one of the world’s most undervalued stock markets today. For investors who are more risk-averse, the higher volume of profitable companies, coupled with consistent market growth, could make London-listed stocks a key component of a successful investment strategy.
Finding an approach that can incorporate the best of US and UK stocks could help to build a resilient ISA that’s fit to continue paying dividends long into the future. This way, you can add high-growth stocks alongside lower P/E options domestically for a strong blend of future potential mixed with sustainability within your strategy.