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2025 Investment Strategy

Investment Strategy • 2025

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Investment Strategy
2025

2025 Investment Strategy

As we look ahead to 2025, signs point to the global economy achieving a soft landing, avoiding a severe recession. Key indicators such as stabilizing unemployment rates, steady inflation, and increasing CEO confidence bolster this optimistic outlook. However, geopolitical shifts, supply chain vulnerabilities, and evolving macroeconomic dynamics persist. This report comprehensively analyzes these trends and their implications for investment strategies.

Industries: Infrastructure, ESG, Energy, AI, Technology, Consumer DiscretionarySectors: EquityPublished 1/17/2025

Executive Summary

The 2025 investment landscape is defined by a global economic recovery navigating toward a soft landing, supported by stabilizing inflation, steady labour markets, and increased corporate confidence. Key trends include advancements in green energy, AI-driven productivity, digital innovation, and infrastructure development. Geopolitical tensions, supply chain restructuring, and elevated interest rates remain notable risks. Our strategy focuses on aligning portfolios with sectors poised for sustainable growth, leveraging thematic investments, and adopting a disciplined approach to mitigate inflationary pressures.

Key Recommendations

  • Increase exposure to green energy, AI, and infrastructure, particularly in the Western U.S., where fire mitigation, rebuilding efforts, and disaster resilience drive demand.
  • Address the potential repeal of the Inflation Reduction Act (IRA) by targeting companies with diversified green energy and infrastructure revenue streams.
  • Emphasize consumer discretionary sectors like apparel and experiential retail, aligning with shifts in spending.
  • Avoid inflation-sensitive industries, focusing on companies with strong pricing power and innovation-led growth.
  • Leverage global diversification to capture opportunities in emerging markets like India and Southeast Asia.

Key Trends for 2025

Economic Stability and Inflation Resilience

  • Soft Landing Prospects: Global GDP growth is forecasted at 3.2%, with the U.S. expected to grow by 2.1% (IMF).
  • Inflation Outlook: Core inflation is projected to moderate to 2.8% by Q4 2025, but wage-driven inflation in the services sector remains risky.
  • Currency Strength: The U.S. dollar is expected to appreciate, supported by interest rate differentials and safe-haven demand.

Infrastructure and Disaster Resilience

  • Western U.S. Rebuilding: The rebuilding costs from California’s devastating wildfires in 2024 are estimated at over $30 billion, with significant federal and state funding directed to infrastructure, wildfire resilience, and water management. The Bipartisan Infrastructure Law allocates $15 billion for wildfire prevention and $20 billion for water infrastructure.
  • Energy Infrastructure Growth: The removal of drilling caps and expedited permitting processes under the current administration have spurred a 7% projected increase in U.S. oil production for 2025. This is expected to benefit midstream companies and create opportunities for pipeline expansion.
  • Opportunities: Companies specializing in construction materials, engineering services, and utility grid modernization are poised to benefit.

Green Energy Transition

  • Investment Momentum: Renewable energy investments are projected to grow by 18%, with U.S. solar installations increasing by 15% and wind capacity growing by 9%.
  • Policy Concerns: The current administration's potential repeal of the IRA raises uncertainty in tax credits for renewable energy projects. Companies with global operations and diversified portfolios are better positioned to weather these changes.
  • Risks: Challenges include supply chain disruptions for rare earth materials and opposition to new transmission lines.

AI and Automation

  • Market Growth: The AI sector is expected to achieve a CAGR of 26% through 2025, and its total market size will reach $310 billion.

Applications:

  • U.S.: AI adoption in healthcare, logistics, and retail is driving operational efficiency and enhancing customer engagement. AI is also being deployed to manage wildfire prediction and resource allocation in disaster-prone areas.
  • Europe: The European Green Deal emphasizes AI for energy grid optimization and smart manufacturing. Europe’s AI Act, expected to be implemented in late 2025, introduces strict algorithmic transparency and accountability guidelines, potentially increasing compliance costs but fostering consumer trust.
  • India: Rapid AI adoption in fintech, e-commerce, and telecommunications is projected to contribute 1.2% to GDP growth by 2025.
  • China: The government-backed AI development plan, with $25 billion in funding, focuses on advanced manufacturing and AI-driven digital trade. This aligns with China’s broader self-reliance strategy in semiconductor and AI technology.

Policy Support: These regional policies set global benchmarks, fostering innovation while driving regional specialization in AI applications.

Consumer Behavior Shifts

  • Spending Patterns: High-income households drive discretionary spending, while middle-income groups focus on essentials.
  • Apparel Trends: The U.S. apparel market is projected to grow by 5.6%, driven by athleisure, luxury, and fast fashion. E-commerce apparel sales are expected to increase by 14%.
  • Experiential Spending: Travel, dining, and entertainment sectors are thriving, with spending on experiential activities rising 12% year-over-year as consumers prioritize experiences over material goods.

Sectoral Highlights

Energy and Infrastructure

  • Winners: Renewable energy firms, midstream companies, and those involved in disaster-resilient infrastructure development.
  • Risks: Policy rollbacks, transitional costs for traditional energy companies, and opposition to large-scale projects.
  • Strategy: Increase allocations to ETFs and stocks in green energy and midstream infrastructure, focusing on companies with diversified revenue streams and strong policy adaptability.

Healthcare

  • Drivers: Aging populations and advancements in biotech, personalized medicine, and telemedicine.
  • Opportunities: Biotech firms specializing in chronic disease management, gene therapies, and AI-driven diagnostics.
  • Strategy: Focus on innovative healthcare ETFs and mid-cap biotech firms poised for breakthroughs.

Technology and AI

  • Growth Areas: Cloud computing, generative AI, edge computing, and AI-driven manufacturing.
  • Key Winners: Companies integrating AI into workflows, developing AI-powered customer service, and applying AI in disaster prediction and recovery.
  • Strategy: Emphasize investments in AI-focused funds and leaders in digital transformation.

Consumer Discretionary

  • Trends: Apparel sales driven by athleisure and luxury fashion growth, supported by e-commerce adoption.
  • Opportunities: Retailers focusing on value-oriented and experiential shopping.
  • Strategy: Target companies leveraging omnichannel retail strategies, customer loyalty programs, and innovative product lines.

Our Investment Strategy

Thematic Investments

Our fund will prioritize allocations to green energy, disaster-resilient infrastructure, and AI-driven technologies. Specifically, we will:

  • Target firms leading wildfire resilience and energy modernization efforts in the Western U.S., where disaster recovery investments are accelerating.
  • Focus on renewable energy companies with diversified operations that can navigate potential IRA policy changes.
  • Increase positions in firms utilizing AI to enhance operational efficiency, particularly in logistics, healthcare, and manufacturing.

Consumer Discretionary Investments

We will enhance our exposure to consumer discretionary sectors, particularly apparel and experiential retail, by:

  • Investing in apparel retailers with robust e-commerce platforms and loyalty-driven marketing strategies.
  • Targeting companies in the travel and entertainment industries capitalizing on increased experiential spending.

Global Diversification

Our fund will expand exposure to emerging markets to capitalize on growth potential driven by digital adoption and infrastructure expansion. This includes:

  • Allocating to companies benefiting from India’s rapid digital transformation and Southeast Asia’s supply chain shifts.
  • Identifying leaders in these regions’ infrastructure and technology sectors.

Inflation-Resilient Allocations

To mitigate inflation risks, we will:

  • Prioritize investments in technology and healthcare companies with strong pricing power.
  • Increase exposure to consumer goods and premium brands with demonstrated resilience to economic pressures.
  • Continue to hold large grocery retailers and discount goods retailers with significant market share.

Risk Assessment and Mitigation

Our fund recognizes that 2025 presents a complex risk environment requiring proactive management and mitigation strategies. Below, we outline the primary risks and our planned responses.

Economic Risks

  • Persistent Inflation: Wage-driven inflation in the services sector could increase the costs of consumer staples and discretionary goods. Our investments in Loblaws and Dollarama mitigate this risk, as these firms benefit from consistent consumer demand.
  • Interest Rate Volatility: Rising rates could pressure equity markets. We will maintain positions in gold as a hedge against economic uncertainty and inflation.

Geopolitical Risks

  • Trade Conflicts: Ongoing tensions in U.S.-China trade could affect Alibaba’s performance. We will closely monitor developments and diversify with exposure to Southeast Asia.
  • Regional Instability: Conflicts in Eastern Europe and the South China Sea could disrupt energy and trade. Our investments in Williams Companies and AltaGas, which focus on North American infrastructure, provide stability.

Policy Risks

  • IRA Repeal: The potential rollback of the IRA could disrupt green energy investments. We are focusing on globally diversified renewable firms to offset U.S.-specific risks.
  • AI Regulation: Compliance costs under Europe’s AI Act could affect technology firms. We are investing in companies with robust governance frameworks to navigate these challenges efficiently.

Sector-Specific Risks

  • Energy Transition Challenges: Material shortages for renewable projects could delay timelines. Our exposure to AltaGas and Williams Companies ensures access to established energy infrastructure.
  • Consumer Volatility: Economic uncertainty may impact discretionary spending. Our investments in Dollarama and Loblaws provide stability through value-focused consumer demand.

Environmental and Climate Risks

  • Natural Disasters: Wildfires and hurricanes could impact regional economies. We are prioritizing infrastructure companies addressing resilience and recovery, particularly in the Western U.S.
  • Regulatory Risks: Stricter carbon policies may impact traditional energy firms. Investments in companies like AltaGas, which are transitioning to lower-carbon operations, mitigate this risk.

Conclusion

2025 represents a pivotal moment in the global economic recovery, with opportunities emerging across green energy, advanced technologies, and resilient consumer markets. By capitalizing on these trends and maintaining strategic investments in inflation-resistant and growth-oriented sectors, our fund is uniquely positioned to thrive in this dynamic landscape.

Through our current holdings in stable and growth-focused sectors, such as infrastructure, consumer staples, and technology, we continue to anchor our portfolio in resilience. Concurrently, our forward-looking strategies aim to capture transformative growth in areas like AI, renewable energy, and emerging markets, ensuring robust returns and long-term value creation.

Our approach, rooted in disciplined analysis and diversification, allows us to navigate uncertainty confidently. It positions our fund to mitigate risks and leverage them into strategic opportunities. This combination of adaptability and focus will drive sustainable outperformance for our investors.