Foreign investors now own 66% of UK-listed shares, up from 64% in 2019, according to an analysis of UK shareholder registers by investor relations consultancy Orient Capital.
US investors are the largest foreign holders of British shares, owning 28% of the London market in 2021. Almost three-fifths of this (57%) is from US mutual funds.
"Along with their Canadian neighbours, US mutual funds now own £1 in every £6 of UK shares, up from just £1 in £9 in 2013, making them the largest shareholders in British companies, bigger even than British unit trusts which now own £1 in every £7," the report said.
Along with their Canadian neighbours, US mutual funds now own £1 in every £6 of UK shares, up from just £1 in £9 in 2013, making them the largest shareholders in British companies."
European investors have increased their holdings of UK shares the most in the past two years, and now claim a 19% stake - up from a post-referendum low of 15% in 2019.
Alison Owers, global chief executive of Orient Capital, said: "The UK stock market, in common with leading stock markets around the world, is dominated by big multinationals whose operations span every continent and compete with global peers, wherever they happen to be listed.
"There is therefore no logic for investors only to consider companies that happen to be listed at home," she added.
Elsewhere, investors from China, especially public corporations, have notably taken more interest in British companies. They have more than doubled their holdings from 0.7% in 2019 to 1.7% in 2021.
British pension funds now own only 2% of the London stock market following a steep decline in recent years. In 2013, British pension funds owned 8% of London-listed shares by value.
"This is partly due to international diversification as UK pension assets have swapped domestic for overseas holdings, partly because liquidity rules have pushed pension funds into more fixed income assets and partly because of the increasing interest pension funds have shown in alternative assets like infrastructure whose long time-horizons match pension fund liabilities," the report added.
Foreign pension funds have also become less enthusiastic owners of UK shares.
Orient Capital has predicted that foreign investors will hold as much as 80% of the UK stock market by 2040, but it is "unlikely to rise much further than that".
Foreign investors are mostly interested in UK-listed mining, healthcare and consumer goods companies.
First published by our sister title Investment Week