How are advisers investing in 2025?

2024 was the year of the equity market rally that could. Despite pockets of (often extreme) volatility over the course of the year, both local and global shares overcame investor nerves around the macro outlook to generate solid returns.

Yet if we take a closer look at where the growth came from last year, it’s undoubtedly US equities, and technology in particular, that powered markets to a strong finish. The S&P 500 achieved a more than 23% return in 2024, narrowly behind 2023's result and the first time since the late 1990s that the index has achieved consecutive gains of more than 20%.¹

Source: LSEG Datastream, BlackRock Investment Institute. Nov 27, 2024.
Notes: Mega cap 7 includes Apple, Microsoft, Google, Amazon, Meta, Nvidia and Tesla.

This unprecedented result has led some to question how much longer the rally in tech can continue, with the sector now making up more than 30% of the MSCI World Index’s total market cap – the highest market share since the dot-com bubble in early 2000². But with earnings continuing to deliver, and global AI-related investment just getting started, we still see a lot of upside in both AI and US equities more broadly – and so do advisers.

Below, we identify the four key themes advisers have told us are key to their thinking when it comes to client portfolios this year, from the broader market outlook to what sectors and asset classes are capturing their interest.

In our first quarterly pulse survey conducted in Q4 2024, a significant proportion of advisers said they expected global equity markets to perform well this year, with just a handful pointing to mixed or challenged performance. This echoes our house view on markets this year – with interest rates now falling across most developed markets, we see a positive outlook for risk assets and prefer equities over bonds.

Source: BlackRock Quarterly Pulse Survey data as at 26 November 2024.

As the possibility of a ‘hard landing’ from high interest rates and inflation looks ever less likely, we’re instead leaning into a scenario of moderate global growth and a market environment that continues to be led by US corporate strength, technology and other winners from the AI revolution. The outlook for fixed income, and for bonds’ traditional role as a portfolio diversifier, is less certain given the persistent government deficits we are likely to see in Australia and globally.

Advisers are also confident that the US equity rally will continue this year, with most pointing to the US as the market they’re most interested in increasing allocations to, while a few are also keen on adding to Australian equities. Indeed, despite stretched valuations both historically and relative to other developed markets, we believe the US is poised to keep outperforming given its deep exposure to the AI theme and positive economic fundamentals.

Taking a look at economic growth across different global markets, we can see that the US and Japan stand out as the only economies where GDP is returning to pre-pandemic trend levels (see chart below). With US earnings growth also broadening out from a concentrated technology scenario to other sectors including financials, utilities and materials, we expect to see a broader set of winners across corporate America in the coming year.

Source: BlackRock Investment Institute, with data from Haver, November 2024.
Note: The chart shows the percentage difference in GDP levels for each country or region as of Q2/Q3 2024 compared to their pre-pandemic trend (2015-2019), indexed to Q4 2019.

Currency is also an important consideration for investing in the US, and with a host of macroeconomic variables set to potentially impact the outlook for the USD-AUD exchange rate – including tariffs, interest rate movements and stimulus in China – advisers may want to consider hedged exposures.

When it comes to the winning sectors this year, advisers are still pretty confident on technology. The majority of those who responded to our pulse survey pointed to tech as the potential biggest gainer in 2025, with a handful of votes for the more defensive sectors of healthcare and consumer staples.

This may be somewhat surprising given the outsized performance we’ve already seen in tech over the past couple of years³ – but not when you consider that we may only be at the first phase of a long-term AI ‘megaforce’ that will transform the global economy. With 10% of all semiconductor and technology sector sales currently reinvested into capital expenditure, product innovation and growth in the AI space is likely to expand from here.

It is not possible to invest directly in an index. Indexes are unmanaged. Index performance does not account for fees.
Source: BlackRock Investment Institute, with data from LSEG Datastream, October 2024.
Notes: The chart shows the capital expenditure (capex.) of the US semiconductor and tech sectors relative to their sales. We use index proxies for sectors constructed by Datastream – US DS Semiconductors and US DS Technology.

Another key trend that’s come up in conversations with advisers over the last year is adding diversification for when those pockets of equity market volatility occur. With bonds not providing as much of a cushion against equity market shocks as they used to, advisers are interested in looking further afield for asset classes with a low correlation to equities.

Source: FTSE Russell as at 31 October 2024.

Global listed infrastructure and global property are two sectors that fit this bill, and are also set to benefit from US and AI-related tailwinds, with significant weightings to US equities and data centre providers (see above charts). With geopolitical tensions likely to continue this year, we also see an expanding role for gold as a hedge against uncertainty and think central bank demand will be supportive of further price rises.

Overall, it seems advisers are positioning for further, concentrated gains in equity markets this year – while exploring how they can build more resilience in their portfolios longer-term.