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As the FTSE 100 finally cleared the 10,000-point milestone in early 2026, many investors might have assumed the ‘easy’ money has already been made in UK shares. I don’t think that’s the case.
Because while the Footsie soars, the valuation gap between the London Stock Exchange and much of the rest of the world remains noticeable.
The FTSE 100’s trading at 18 times earnings versus nearly 30 for the S&P 500 and 19 for the STOXX Europe 600. And its trailing yield is 3.1% next to a meagre 0.9% for the S&P 500 and 2.5% for Europe’s index.
According to AJ Bell, investors could be in line for a 3.4% yield from the FTSE 100 in 2026. And dividends are expected to be supported by total pre-tax profits of £260bn for FTSE 100 firms, which if achieved would beat the previous 2022 record of £231bn.
FTSE 250
Meanwhile, the FTSE 250 contains some huge yields and very cheap shares. Over 10 stocks are yielding 9%+!
Admittedly, more of these firms rely on the misfiring UK economy. But there are many global dividend-paying firms in the mid-cap index getting thrown out with the bathwater. So, potential opportunities there.
British billionaire Jim Mellon has been loading up on cheap renewable energy trusts that are yielding 10-12%. So there could also be income opportunities in this space (though future regulatory changes may hurt these trusts’ cash flows).
Small-cap opportunities
It’s the same script with UK small-caps, which have been overlooked for years now.
Historically, these have traded at a premium to large-caps because they have higher growth potential. But in 2026, many are now trading at a discount to FTSE 100 blue-chips, which is a rare historical anomaly.
Some quality UK small-caps are yielding 4% to 6%, despite still growing earnings strongly.
As Ken Wotton, manager of the Gresham House UK Smaller Companies fund, points out: “There’s a value play on the UK for investors, and within that there’s a value play at the small and mid-cap end of the market”.
The Gresham House UK Smaller Companies fund has £265m-cap Brooks Macdonald Group (LSE:BRK) as its top position. This is a wealth management firm that last year sold off its international business to focus purely on the UK.
This focus on one market adds risk, of course, especially given the high levels of competition. But the UK’s also a structurally growing market due to the country’s ageing population and complex pension rules.
Brooks Macdonald offers a range of investment management services to private high-net-worth individuals, pension funds, and institutions. It recently moved from AIM to the main market, which should put it on the radar of more investors.
Indeed, this is what the fund above seems to be anticipating. In September, it wrote that Brooks Macdonald is “a leading player in the highly fragmented wealth management sector and is materially undervalued relative to precedent M&A transactions in the space.”
With Brooks Macdonald’s shares trading at just 11 times forward earnings while offering a 5.4% yield, this small-cap dividend opportunity may be worth exploring further.
Foolish takeaway
Putting all this together, today could still be a once-in-decade chance to lock in some rare passive income opportunities, particularly across the FTSE 250 and small-cap space. Many UK shares here look undervalued.
