Dominant performance from large-cap stocks, political instability, stubbornly high inflation and low consumer activity have all created headwinds for UK consumer stocks, which have continued to underperform wider competitors.
While the FTSE All Share index has risen 72.7% over the past five years, consumer staples and consumer discretionary businesses have underperformed by more than 30 basis points, as seen in the chart below.
What’s more, the Morningstar UK Consumer Cyclical and Defensive indices delivered annualised returns of 2.1% and 6.6% respectively over the past five years, well below the broader market’s 13.4% return. At its worst, the Morningstar UK Consumer Cyclical index had fallen by as much as 34.1% in absolute terms over the past five years, Morningstar data showed.
See also: The UK sectors outpacing the magnificent seven in 2026
“It’s become very trendy to be negative on the UK consumer,” Matthew Tillett, fund manager at Premier Miton, told Portfolio Adviser. “You can understand why, given the bad headlines, the cost of living crisis and so on.”
Stock prices for several well-known consumer brands have also been in the doldrums in recent years. According to data from Hargreaves Lansdown, Guinness owner Diageo’s share price has cratered more than 50% over the past five years. Meanwhile, home construction company Taylor Wimpey is down more than 20% in the past 12 months.
Even popular bakery chain Greggs has experienced a share price decline over the past five years, HL data showed.
But despite the challenges to the domestic economy, the situation is not as bad as many headlines suggest, Tillett said. Within his Premier Miton UK Value Opportunities fund, consumer discretionary stocks are his second-highest sector allocation at 20.5%.
“The days of the UK household and private sector being this turbocharged, highly leveraged, spend-everything culture are gone,” leading to much stronger balance sheets, he said.
Will Tamworth, manager of the Artemis UK Smaller Companies fund, agreed: “The biggest driver of the UK economy is by far the consumer, who represents 60% of GDP,” he explained. “With household debt to income at an 18-year low, the balance sheet is a lot stronger than it used to be.”
“The part that’s holding the UK consumer and therefore the wider economy back is just the lack of confidence to go out and spend.”
Because the consumer has been in a down-cycle for so long, valuations and market activity have become so deeply depressed that the market has developed some incoherent ideas about consumer stocks, according to Premier Miton’s Tillett.
Instead of expecting a turnaround, markets have started to price these stocks as if they will never normalise, he added.
“When you have something that goes on for about two or three years, like the downturn in big-ticket consumers, the market just totally gives up.”
However, this means that investors do not actually need to make any call about when a consumer turnaround might happen, Artemis’s Tamworth argued.
He added: “If you take the view that you don’t need a short-term catalyst and ask instead, can these companies benefit if consumer confidence picks up in the next five years?
“I’m much more confident about all that than when a catalyst may or may not happen.”
See also: Artemis bolsters UK smaller companies’ team
On top of this, valuations are now so pessimistic that if any normalisation happens at all, the resulting returns look much more appealing, according to Premier Miton’s Tillett .
“You can now buy the market leader in a particular subsector on a valuation suggesting depressed profits, with little to no balance sheet or AI risk,” he said. “Buying these assets, at this sort of price, with these risk profiles, the range of possible outcomes is so heavily skewed in my favour as a value investor.”
As a result, he said he is now finding opportunities in formerly expensive names such as Diageo.
“We’ve followed it for years; it’s had several issues in the post-pandemic period, when people realised its massive boom was not actually all that sustainable,” the Premier Miton manager said.
The beverage company’s tanking share price has caused it to plunge from one of the most popular stocks on the UK market to a laggard.
However, in recent months the company has implemented some positive changes. Dave Lewis, the CEO behind the turnaround at Tesco, has taken over, and the company has sold some of the surface assets and now trades at a discount, he explained.
It is not just UK managers seeing value in UK consumer stocks. Will James, manager on the Guinness Pan-European Equity Income fund, said his team allocates to Warhammer figurine maker Games Workshop, for example.
“Over the past decade or so, Games Workshop has quietly established itself as a unique consumer proposition that is well insulated from the vagaries of the prevailing winds that have blown across the UK consumer,” James said.
Because the company is responsible for the design, manufacturing and distribution of its property to its “passionate cult following”, the company has effectively created a “hobby for life” business. This makes it well suited to perform, no matter what goes on in the domestic economy, according to the manager.
See also: Downing Fox’s Evan-Cook: ‘We could see Woodford repeated on a market scale’
Overall, Artemis’s Tamworth said sentiment towards UK consumer stocks had tentatively begun to improve prior to the Iran-US conflict, and believes it “really wouldn’t take much for confidence to pick up”.
“If it does, that’s a big tailwind,” he said. “We all know that the headlines are negative but sentiment can change quickly”.
