Key takeaways: 

• The year ahead is set to be defined by a changing macroeconomic landscape, including a shift in policy in the US, and expectations for interest rate cuts. 

• Artificial intelligence (AI) is likely to remain a topical theme in 2025 as investment increases, while the global energy mix, novel pharmaceuticals, and gold are all poised to respond to changing macro conditions. 

• Amid change, strategies like diversification and dollar-cost averaging may help investors navigate the landscape, with ETFs representing a potential vehicle to target key themes. 

• It is important to always do your own research before making decisions to invest.

• Past performance is not an indicator of future performance  

• As always please undertake your own research and seek the appropriate advice.

With 2024 now behind us, the year reveals several trends. Labour markets exceeded expectations and global economic growth varied significantly by region. While interest rates declined globally, Australia remained an exception. 

All the while, global equities set record highs and delivered strong returns. 

Now, as we enter 2025, change is an overarching theme. 

A Changing Macroeconomic Landscape  

The year ahead will be defined by a change in trade and geopolitics – coinciding with the new US government – plus changes relating to technology, the global energy mix, and the macroeconomic landscape. Investors should continue to monitor how central banks globally are responding to inflation. 

Deregulation and lower corporate taxes proposed by the incoming US administration may support earnings. This backdrop may also pave the way for greater merger and acquisition (M&A) activity across small and mid-cap companies. However, uncertainty surrounds trade tariffs, including inflationary risks and higher bond yields. 

Meanwhile, economic growth could diverge. Australia’s economy is largely tied to China, where growth remains below historical standards, burdened by deflation. Global economic growth will be influenced by monetary policy and geopolitical risks that escalated through 2024. 

Amid this changing landscape, several key investing themes loom large in 2025. Investors should seek to understand these themes because change – while representing uncertainty – also creates opportunities.   

The Unfolding AI Transformation† 

Already having a profound impact on the global economy and the stock market, artificial intelligence (AI) shapes as a major investment theme for 2025. AI is now embedded into all sorts of business operations, harnessing efficiencies, reducing costs, and creating revenue streams. 

Between 2024 and 2028, AI expenditure is expected to grow at a compound annual growth rate (CAGR) of 29% and reach US$632 billion. This spans semiconductors, data infrastructure, robotics and automation, large language models, cybersecurity, and cloud computing.  

Companies poised to benefit the most from these developments are those building the architecture to power such transformational technology. In CY25, ‘hyperscalers’ Microsoft, Alphabet, and Amazon are forecast to spend US$125 billion in AI capex. 

During the first half of 2024, six stocks accounted for over half of total returns for the US market – Nvidia, Microsoft, Alphabet, Apple, Amazon, Meta. Investor sentiment was buoyed by the potential and utility of each company’s AI exposure. 

The performance of this cohort underscores how innovative tech can anchor returns heading into a slower-growth environment, and the value of diversification between domestic and international shares.  

A Pivotal Year for the Global Energy Mix 

With record energy consumption expected in 2025, the global energy mix takes on greater focus amid divergent policy and global conflict. 

The incoming US administration intends to boost oil and gas production, while speculation has centred on whether the US might pull out of the Paris Climate Agreement.  

This would be out of step with most of the world, where net zero and emissions targets are driving investment towards renewables. In 2025, more than a third of global electricity will come from renewables. 

Locally, the debate surrounding nuclear energy versus renewables will be a central topic in an election year.  

Nuclear energy has seen a revival overseas via new projects and legacy plants recommissioned to address demand for low-carbon, reliable energy. According to the IEA, global nuclear generation will set a record in 2025 and increase nearly 10% by 2026. Investment in nuclear energy is also coming from the private sector, including Amazon, Google, and Microsoft. 

For investors, 2025 may herald opportunities in both traditional energy and renewables, each central to the global energy mix over the coming years.  

In some respects, these two sources represent a dichotomy between income-generating investments (e.g. ASX-listed oil, gas, coal shares) and growth investing (e.g. small-cap shares and ETFs offering exposure to renewables), representing a form of portfolio diversification. 

Demand for Novel Pharmaceuticals 

Although 2024 saw the Health Care sector upstaged by tech, the dynamic nature of this industry, including sub-segments facilitating both defensive and growth exposure, could present opportunities for investors in 2025. 

Notwithstanding the sector’s underperformance this year, innovative companies developing novel solutions have been supported, as evidenced by the growth profiles for obesity and diabetes drug manufacturers Eli Lilly and Novo-Nordisk. 

Biotechs stand to benefit from lower genome sequencing costs, quicker discovery timelines, and the expansion of cell-based therapies. The role of AI is facilitating improved medical outcomes concerning drug discovery, predictive analytics, screening, diagnosis, and treatment. 

The sector also benefits from strong tailwinds, including pent-up demand for surgery and treatments post-pandemic, higher reimbursement rates in the US, and ageing populations in Australia and the US. These factors are expected to drive increased demand for medical care. 

The sector features growth opportunities, including small caps with high risk-reward potential, and established businesses offering defensive portfolio exposure, while various ETFs provide concentrated health care exposure or target themes like telemedicine and biotechnology. 

The Role of Gold 

In 2024, the price of gold reset its all-time high on 40 separate occasions – the most times in any given year since 1979. Gold is also had its best annual performance in over a decade, up 25.5% in 2024.  

Both gold and bonds are considered defensive assets, but their roles within portfolios have differed over recent times. Bonds, like REITs, have served as income-generating assets. Gold, with a compound annual growth rate of 9.6% over the last 20 years, has performed as well as some growth assets. 

While past performance is no indicator of future performance, several macroeconomic forces that supported gold this year are expected to remain in play in 2025. 

This includes uncertainty tied to a shift in US economic policies, safe-haven demand amid heightened geopolitical risks, central bank buying, and the loosening of monetary policy. 

Typically, gold prices rise as interest rates decline. However, one pitfall concerns the uncertainty surrounding the pace at which the Federal Reserve may cut rates. There is also uncertainty related to the risks of any inflationary policies under the new US administration. 

Despite these uncertainties, gold remains a compelling asset for investors. The World Gold Council reported that 29% of central bank respondents plan to expand their gold reserves over the next 12 months – the highest level since 2018 – and global gold ETFs, the key instrument to invest in this asset, reported six consecutive months of inflows. 

Change and Investment Decisions  

Considering the uncertainty at hand entering 2025, investors should be conscious about positioning their portfolios for the changing landscape and not anticipating returns of the magnitude seen in previous years.  

Strategies like dollar-cost averaging and diversification across geographies, asset classes can help manage potential volatility. ETFs can offer targeted exposure to emerging themes with long-term growth potential. 

Past performance is not an indicator of future performance and seeking the appropriate advice and undertaking your own research is also important.