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I think investors with a long-term focus should be looking carefully at UK shares right now. To my mind, the relative discount on offer at the moment is huge.
One way of looking at how attractive share prices are is by comparing them with bonds. And when it comes to the FTSE 100, I think the difference is quite striking.
Stocks vs bonds
In general, stocks offer more potential reward at the cost of higher risk. A bond return can’t go up, but a government defaulting on its debts is less likely than a company going bankrupt.
Comparing the prices of stocks and bonds gives an idea of how investors are thinking about the stock market. Specifically, it gives a sign of whether they’re optimistic or pessimistic.
Right now, the FTSE 100 trades at an average price-to-earnings (P/E) ratio of 18.2, which implies an earnings yield of 5.49%. And that’s well above where government bond yields are.
| Asset | Current Yield |
|---|---|
| FTSE 100 | 5.49% |
| 10-year gilt | 4.54% |
| 30-year gilt | 4.38% |
That suggests investors are focusing on the risks with UK shares right now. There’s nothing intrinsically wrong with this, but it’s worth noting that it’s not happening across the board.
The S&P 500, by contrast, trades at a P/E multiple of around 29. And that means the implied earnings yield is 3.5%, which is below the current returns offered by US government bonds.
| Asset | Current Yield |
|---|---|
| S&P 500 | 3.50% |
| 10-year US government bond | 4.20% |
| 30-year US government bond | 4.82% |
I think this suggests that investors see a lot of risk and not a lot of reward when it comes to UK shares right now. But – at least in some cases – this looks like a mistake to me.
Excess pessimism
Bunzl‘s (LSE:BNZL) been one of the FTSE 100’s worst performers of 2025 (so far). The stock’s down 35%, but I think this is a big overreaction from the market.
Tariffs have been a big issue for the distributor this year – and anyone who thinks we’ve seen the last of them might have another think coming. But the firm’s also had its own issues.
A badly executed shift to focusing on its own products caused the loss of a major customer in the US. Despite this, the stock still looks far too cheap to me.
Bunzl shares currently have a 3.5% dividend yield and the firm has an excellent record of increasing this. Over the last decade, it’s grown by an average of 7% a year. If that continues – and I think there’s a good chance it does – the stock should offer a better return than a UK gilt from the dividend alone. And there’s a lot more to the firm than this.
Bunzl uses less than half of its net income to finance its dividend. It reinvests the rest into growth opportunities and I’m expecting this to boost returns even further for investors.
Too good to refuse?
Bunzl’s already a big part of my portfolio, but I think it’s an above-average company trading at a below-average valuation. And I don’t see it as particularly close in either case so is worth considering.
This is actually why I like UK shares in general. Whether it’s bonds or other stocks, I think there are lots of interesting opportunities for investors looking for them.
