UK ‘Fusty 5’ outpace Magnificent 7 giants as equity winds shift 

The long dominance of US quality growth technology stocks faltered in 2025, with a basket of so-called ‘fusty’ UK value shares materially outperforming the American Magnificent Seven, according to Alan Dobbie, fund manager of the Rathbone Income Fund. 

The shift could mark a turning point in global equity markets, as investors reassess valuations, geopolitical risk and the sustainability of momentum-driven strategies.

Data (below) show that a cohort of traditional UK income and cyclical stocks, dubbed the Fusty 5, have comfortably outpaced the returns of the US mega-cap technology leaders that have dominated global performance for much of the past decade. 

Source: Factset; data GBP total return in 2025 

“The market narrative has been that quality growth is the only game in town,” said Dobbie, “But in 2025, we saw something very different. UK value stocks, long dismissed as dull or ex-growth, are outperforming the Magnificent Seven. That could lead to a profound shift in leadership.” 

Valuation Back in Focus

For more than ten years, investors rewarded growth at almost any price, with valuation discipline often seen as an unnecessary constraint. However, it could be argued that style momentum has now become a headwind.

“If you’ve doubled down on growth at any price, that has increasingly become an anchor on performance,” said Alan Dobbie. “Markets are once again scrutinising what’s priced in and we think that changes the environment fundamentally.”

Recent market volatility, narrow leadership and heightened geopolitical tensions have pushed risk premia higher, putting pressure on highly rated US technology names while UK equities, trading at significant valuation discounts and offering attractive income, have benefited from renewed investor interest.

“Our mandate is to deliver income at or above the FTSE All-Share, not to hug a style label,” said Dobbie. “Income investing naturally leans towards value, but value does not mean low quality. We focus on businesses allocating capital sensibly to drive sustainable earnings and dividend growth.”

AI Volatility Creating Opportunity

While artificial intelligence remains a dominant theme, the manager believes markets are overreacting to perceived “AI winners and losers”.

Recent additions to the fund include increased exposure to Relx following a sharp share price fall linked to US technology developments in legal AI tools, and a new position in Experian, whose shares have also been caught in broader AI-related selling.

“In both cases, we believe the market’s reaction has been kneejerk,” said Dobbie. “Relx has invested heavily in AI-enabled legal tools and formed partnerships that position it well. Experian’s proprietary credit data is a powerful competitive moat that technology alone cannot replicate.”

The managers argue that indiscriminate selling of established UK businesses on AI fears echoes the earlier distortion seen on the way up in US mega-cap technology stocks.

Dobbie said: “Price is the discipline that compensates for what we don’t know. In an environment dominated by passive flows and thematic investing, valuation has reasserted itself.”

Recent Portfolio Activity

During January, the fund trimmed positions in Computacenter, Rio Tinto, HSBC, IG Group, GSK, Tesco, BAE Systems and Hiscox, reallocating capital towards areas of greater value. Holdings were increased in Primary Health Properties, Relx, Compass Group and Bunzl, with Experian added after month-end.

Dobbie stressed that the moves represent a rebalancing rather than a wholesale repositioning. “This is not about nostalgia for old-economy stocks,” Dobbie concluded. “It’s about recognising that markets move in cycles. When valuation and income reassert their importance, outcome-focused strategies come into their own.”