Nine themes set to reshape portfolios

POLARISATION had an impact on geopolitics, national politics and financial markets in 2024, positioning thematic investing to better capitalise on emerging opportunities. In 2025, significant drivers of structural change include the implementation of US President Donald Trump’s post-election promises and key regulatory decisions in global markets.

These will prompt new business plans and budgets at the corporate level, influenced by supply-chain dynamics, potentially higher funding rates, and intensified merger and acquisition (M&A) activity. The following analyses and insights are driving our high-conviction themes for 2025.

Fintech and financials back in favour

Fintech experienced a robust resurgence in 2024, driven by strong operational results, attractive valuations, and optimism surrounding Trump 2.0. Traditional financials also thrived, buoyed by “higher for longer” rates and increased net interest income.

Looking ahead, economic growth, reduced regulation, and fintech initial public offerings are expected to sustain momentum. Although the interest rate cycle may be nearing its peak, we do not anticipate a significant decline in banking profits, as many banks continue to benefit from strong fee-based income streams that are less sensitive to interest rate changes.

Additionally, lower rates could stimulate more M&A activity, unlocking scale, innovation, and profits in fintech and traditional financial sectors.

In the consumer space, the demand for immersive, personalised experiences across travel, entertainment, and digital platforms is rising. Increased digitalisation is driving demand for credit solutions and cross-border transactions, particularly in underserved markets, boosting traditional payment companies such as Visa.

The broadening of markets and reduced emphasis on the Magnificent Seven (Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia, and Tesla) should also benefit financials, particularly fintech, which is rich with overlooked and underappreciated artificial intelligence (AI) and Big Tech innovations.

Digital innovation: AI must show real gains

In 2024, AI once again emerged as the driving force behind technological innovation and earnings growth. Investors and corporates will increasingly demand tangible productivity gains over speculative potential in the high-performance semiconductor and supportive infrastructure sectors.

Software sector revenue growth is forecast to accelerate to 14 per cent by 2025, with cloud computing and software-as-a-service revenues projected to expand at nearly twice that rate, underscoring the growing influence of AI-enabled platforms in driving real digital transformation across the economy.

AI is making significant inroads into the physical world, arriving at a critical time when production bottlenecks and geopolitical security concerns renew interest in reshoring manufacturing. AI, robotics, and automation will help overcome reshoring challenges such as high labour costs, worker shortages, and rapid operational scaling. Consequently, we anticipate accelerated spending on new and retrofitted manufacturing facilities that integrate AI.

Healthcare: diverse trends and innovation

A shortage of doctors and rising healthcare costs indicate that AI will be valuable for the healthcare sector. AI-powered advances in medical imaging and life-science tools are enhancing early detection, treatment outcomes, and personalised therapies. On the dietary front, the shift towards healthy and sustainable foods benefits upstream ingredient companies, supporting superior growth, compared with downstream consumer-facing staples.

Trump’s healthcare agenda is expected to drive the performance of pharmacy benefit managers, managed care networks, Medicaid beneficiaries, and vaccines in the first half of 2025. In the long term, population growth, higher life expectancies, shifting demographics, rising lifestyle disease burdens, and the emerging middle class will drive strong demand for healthcare services.

Circular economy: stricter laws boost circular producers

A key principle of the circular economy is replacing hazardous substances with non-harmful alternatives and preventing their release into the environment. This includes the recent US Food and Drug Administration’s push to simplify nutrition labels on food packaging. These efforts are expected to drive growth among companies specialising in naturally non-toxic ingredients for food, pharmaceuticals, and personal care products.

Additionally, a growing number of food chains are dedicated to bio-labels and healthy food alternatives. The European Union’s newest packaging laws will also benefit holdings involved in recycling and biodegradable packaging.

Smart grids: solution for security and power demands

Global electricity demand is accelerating, underscoring the urgency to expand infrastructure. The International Energy Agency projects that power consumption from data centres, AI, and the cryptocurrency sector may double by 2026. In the near term, renewables, gas, and storage solutions are the most viable technologies to meet surging demand.

Energy security remains a top political priority, with government incentives for clean energy infrastructure driving new construction projects to upgrade energy systems and modernise the grid. Although policy risks may challenge offshore wind and higher-cost technologies, increased US protectionism could benefit domestic solar module manufacturers. Growing power demand, driven by data centre expansion, favours low-carbon, low-cost electricity developers and utilities.

Mobility: revving up EV markets

China’s overall electric vehicle (EV) penetration rate could climb to 75 per cent in 2025, according to some industry experts. In Europe, stricter new fleet CO2 emission standards will drive the production of new EV models and increase consumer uptake. The growing use of cheaper lithium iron phosphate batteries will further support consumer adoption and producer profitability. Declining lithium prices in 2025 are expected to create significant investment opportunities in smart mobility.

Assisted and autonomous driving is poised to be a life-changing AI application, with 2025 likely to be its breakout year.

Water: diverse demands make it an evergreen investment

Water challenges are set to intensify as stringent regulations target pollutants and biological threats. Clean drinking water and micropollutant control remain bipartisan priorities in the US for 2025, positioning advanced water treatment and infrastructure providers for long-term growth.

Additionally, the demand for treated water is increasing from US-based industries and municipalities, driven by reshoring trends for semiconductors, EVs, and other manufacturing sectors, which fuels advancements in water-testing and analytics, recycling, and wastewater management.

Biodiversity: new laws and practices

Resource scarcity and degrading ecosystems are elevating biodiversity in corporate and political agendas. The EU’s Nature Restoration Law, enacted in 2024, sets binding targets to rehabilitate EU ecosystems, benefiting industries such as engineering consulting, construction, and forestry.

Sustainable practices such as organic farming, agroforestry, and advanced land management are expected to drive biodiversity investments, enhancing soil health, water quality, and carbon sequestration.

Smart materials and manufacturing

Manufacturing capital expenditure and construction are strengthening, thanks to Trump’s “America First” industrial policies. Although tariffs and trade tensions may be challenging in the short term, they are expected to accelerate investments in automation and robotics in response to reshoring trends. An anticipated fiscal stimulus should also reignite automation investments in China.

Electrification and automation segments are expected to grow robustly in the mid-20 per cent range, further supported by lower interest rates and the re-emergence of M&A activity. Inflationary pressures are expected to moderate in 2025, creating opportunities in commodities and critical minerals as demand stabilises.

Structural trends such as renewable energy adoption and energy independence should drive demand for lithium, copper, and rare earths, while decarbonisation policies and financing from the EU Green Deal will provide tailwinds for energy-efficient materials.

We are constantly reminded that AI is the future, and this drives investors to eagerly seek opportunities. However, decades of thematic investing have shown that innovation does not occur in isolation. Regulation, macroeconomics, and resource scarcity are crucial to its deployment, adoption and scaling.

Investors should factor in the technological, political, and market currents to best position their investments for short and long-term growth. By closely navigating these themes and their impacts, they may enhance portfolio returns while helping to reshape the future.

The writer is head of thematic investing, Robeco