British Stock Market Is Beating the U.S. How to Catch the Momentum.

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Over the past three months, the tech-heavy Nasdaq Composite and the S&P 500 both took a beating. Not so the FTSE 100, which tracks the United Kingdom’s largest publicly traded companies.

It was a good place to invest when the U.S. markets were not. Even better, the U.K.’s outperformance could continue for a while. “It has to do with tech,” says Jack Ablin, chief investment officer at Cresset Capital. The

London Stock Exchange

has no equivalents to the massive U.S. tech stocks such as

Apple

(ticker: AAPL),

Netflix

(NFLX), or Facebook parent

Meta Platforms

(FB). And tech has been the most notable underperforming sector in the U.S.

The U.K. market has a projected earnings yield of 13%, including dividends, over the next year, compared with 7.5% for U.S. large-caps, Ablin says. That means profits and dividends could add almost twice as much investment value in the U.K. If that happens, it will be a continuation of the outperformance of U.K.-listed stocks. In the three months through Feb. 7, the Nasdaq was down 12.2%, while the S&P 500 lost 4.5%. By contrast, the FTSE 100 gained 3.7% over the same period, according to Dow Jones Market Data.

In addition to the lack of tech exposure, the U.K. market’s outperformance reflects outsize weightings in hot sectors: energy, materials, and financials. Those three industry groupings account for 41% of the FTSE index. The same groupings account for a mere 15.9% of the S&P.

Energy stocks got buoyed on the back of rising oil prices. Materials have also been lifted by historically good prices for iron ore, copper, and aluminum. Meanwhile, financials, including banks, have benefited from rising interest rates.

“Higher interest rates are generally good for banks, and investors don’t mind inflation because that improves credit conditions,” Ablin says. Rising prices effectively reduce the real, inflation-adjusted value of loans, making them more affordable for borrowers to repay.

Even those who think tech will bounce back see the U.K. market rallying for a few more months. “The outperformance…