Patrick Lemmens - Portfolio Manager
Co-authors: Michiel van Voorst - Portfolio Manager, Koos Burema - Portfolio Manager, Mariia Semikhatova - Equity Analyst

Our three key trends, aging finance, emerging finance and digital finance, are all primed for growth in 2025 as the financial sector continues an epochal change process driven by technological advances, geopolitics and demographics.

At the start of 2024 only few strategists and market pundits foresaw the strength of equity markets in general, and financials stocks in particular. The MSCI AC World rallied 17.5% in USD in 2024, while the MSCI AC World Financials gained a stunning 24.3%. As always, we note that equity markets continue to be highly correlated with the direction of global liquidity indicators. The course of action in (real) interest rates, credit spreads and global central bank policies will continue to set the tone, especially for financials.

A key issue facing investors at the start of 2025 is the self-evident contradictory nature of incoming US President Trump’s policy agenda and how those contradictions are going to be resolved. At the same time, surging bond yields and inflation expectations will – in our view – enforce fiscal discipline across the globe and moderate the extreme elements of any tariff plan. While we do not exclude the possibility of continuously high US bond yields and USD strength, we think we may be closer to peak than is currently priced-in, and investors need to be careful to avoid managing portfolios by looking through the rear-view mirror. We prefer to focus on the structural growth trends that drive our stocks, as they tend to show far more consistency and longevity than the typically reactive Wall Street consensus.

Patrick Lemmens, Portfolio Manager
Co-authors: Michiel van Voorst - Portfolio Manager, Koos Burema - Portfolio Manager, Mariia Semikhatova - Equity Analyst

Penetration of fintech players into traditional finance segments and growth of revenues and profits of leading fintechs have met expectations in the eight years since we launched the Robeco FinTech strategy in 2017. In 2025, we expect even more, and believe investor interest in the fintech sector is fully justified. However, stock selection is absolutely critical given the competition between the huge start-up ecosystem, existing players, and traditional financial sector incumbents attempting to defend old business models, in the absence of strong entry barriers or geographic constraints. That's why we have identified the three topical sub-trends – alternative payments, capital markets activity and AI agents – to frame our analysis in 2025.

Figure 1 – Trend and regional breakdown for the Robeco FinTech strategy

Source: Robeco, December 2024.

The Robeco FinTech strategy already differs significantly from peer strategies and passive thematic baskets. For example, we have significantly more exposure to emerging markets where fintech challengers often face little resistance from incumbents and consumer adoption of online services is faster. In addition, we also have a larger exposure to the digital assets space than peers, which served us well in 2024, and has good prospects again in 2025 given the likelihood of a more permissive regulatory environment for crypto in the US.

Determining fair valuations to enter positions, and making decisive exits from underperforming entities, is absolutely key to success, and we expect the performance delta between passive fintech-themed strategies and active strategies to widen as the sector evolves and transforms.

Daniel Ernst, Portfolio Manager

In 2025 the pace of innovation will continue to accelerate in key trends we follow including the application of AI across enterprise software, cybersecurity, and robotics, providing long term opportunities for agile investors.

Dominating 2024, AI was the driving force behind technology advances and earnings growth. After taking home two Nobel Prizes last year, and passing a key benchmark test, AI development is not slowing down. Speaking at the World Economic Forum this month, Demis Hassabis, CEO of Google DeepMind said the company was on track to submit AI-designed drug candidates into clinical trials this year. More mundanely, but no less impactfully, AI agents are poised to shift from merely answering questions to taking action, as the technology seeks to fulfill its productivity enhancing promise.

We also delve into a renaissance in manufacturing, augmented by AI. Production bottlenecks, labor shortages, and geopolitical considerations have driven renewed interest in reshoring. Notably, in the US, investment in manufacturing facilities expanded by more than threefold over the last four years. This year, the country will see its first new leading-edge semiconductor plant begin mass production. In addition, industrial robots are not only getting more plentiful, they are getting smarter and more nimble too, as physical AI models come to the fore.

Finally, we consider cybersecurity, which has long been a top priority for governments and corporate leaders, but the stakes are even higher in 2025. Over the last four years, according to the IMF, cyberattacks have more than doubled and alarmingly risks to critical infrastructure including communication networks and power stations have come into sharper focus. While AI is already playing a role in detecting breaches and automating responses, the technology is a double-edged sword as adversaries also employ the tool. This cyber arms race provides ongoing investment opportunities.

Jack Neele - Portfolio Manager
Co-authors: Richard Speetjens - Portfolio Manager, Daniel Ernst - Senior Analyst, Sam Brasser - Analyst

In an ever-changing consumer landscape, two trends we see gaining traction in 2025, and are investing in, are retail media and injectable aesthetics, while digital entertainment and travel spending are likely to remain strong.

We remain constructive on consumer spending and the outlook for our long-term themes in 2025. US consumer spending was very resilient in 2024 as can be seen in Figure 1, although spending is mostly being driven by the high-income consumer. This affluent cohort has been supported by rising asset values, while the low/middle income consumer slowed in 2024 despite healthy wage growth, as they were disproportionately impacted by inflation. We expect these trends to continue into 2025, although moderating inflation should give more room to spend for the lower end consumers.

Figure 1: Contribution to sales growth by income across large US retailers

Source: Numerator, Barclays, December 2024.

In 2025 we expect retail media to become an increasingly important source of revenue for leading retailers. By ‘retail media’, we mean an emerging form of advertising operated by retailers or with retailers’ first-party data. Brands selling through the retailer buy ads that are displayed on the retailer’s website and app. Alternatively, brands buy first-party data from the retailer to reach customers on third-party channels, like social media or other websites and apps.

We also expect the injectable aesthetics sub-category to continue to grow rapidly. Social media is amplifying awareness and normalizing injectable treatments. Influencers and medical professionals frequently showcase these procedures, often emphasizing their safety, effectiveness, and convenience.

David Blitz - Chief Researcher

Following several years of strong factor performance, investors may well wonder if it’s possible for the trend to continue, or if they ought to brace for a reversal in factor fortunes. We currently appear to be in the normal stage of David Blitz’s ‘quant cycle’ and are likely to remain so.

The quant cycle
As summarized in Figure 1, the quant cycle consists of three stages, with the ‘normal’ stage being most common. This tends to be disrupted by large drawdowns of the value factor, due to either rallies of growth (expensive) stocks or crashes of their value (cheap) counterparts, which are in turn followed by reversals. Finally, there is a return to normality.

Figure 1 | The quant cycle model

Source: Robeco

The only other stage with an elevated likelihood is the bear reversal, i.e. a growth crash scenario. In light of the high market valuation and the large valuation spread between growth and value stocks, the risk of a bear reversal (like another 2022) is probably higher than usual. Fortunately for quant investors these periods tend to be very favorable for factor performance, thereby providing some relief from negative market returns.

Indeed, both these environments are highly favorable for factor performance. Another growth rally would be less supportive for quant investing, while a bull reversal (junk rally) would be outright detrimental, but both these scenarios appear less likely than usual in the current market environment.

This implies a bright outlook for continued strong factor performance in the period ahead. These market conditions are favorable not only for beta-1 quantitative strategies centered on the value, momentum, and quality factors, but also for defensive strategies that specifically target the low-risk factor.

Helen Keung - Client Portfolio Manager

Politically stable India remains the shining star of the emerging markets firmament, with its solid macroeconomic fundamentals and growing domestic investor class giving the bull market in equities more room to run in 2025.

India’s post-Covid bull market has been underpinned by world-leading macroeconomic growth coupled with sustained double-digit corporate earnings growth. Consequently, macro stability and a continuation of strong nominal GDP growth remain the core foundation for the sustenance of this bull market (MSCI India was up 11.2% in 2024; CAGR of 11% over the past four years). Despite a cyclical hiccup in economic growth – which unnerved investors – in Q2 FY25 and Q3 FY25, India’s macroeconomic environment remains stable, providing a favorable outlook for Indian markets in 2025.

Over the next few quarters, we see infrastructure spending continuing to lower logistics costs, with railways and highway construction being key beneficiaries of investment, a boost to select manufacturing sectors such as defense, electronics, aerospace and renewables, as well as housing investment. A reduction in GST rates to boost consumption, more free trade agreements and a continued focus on the energy transition with broadening the sources of energy supply, including nuclear, are potential supply-side policy measures we should expect from the government in 2025.

However, two emerging headwinds could impact returns. The first is the specter of rising US bond yields coupled with a stronger dollar. The second stems from the domestic market, where a surge in equity issuance could create pressure on valuations through diverting market liquidity. If these headwinds prove benign – and that’s how they appear as we enter 2025 – we anticipate India outperforming its EM benchmark for the fifth consecutive year.

Jie Lu, Head of Investments China

China’s long march out its deflationary slump is finally getting the fiscal and monetary coordination it needs, and we believe equities are likely to respond positively in 2025, with any clarity on Trump 2.0 trade policy likely to provide potential entry points.

Since late September the direction of travel has been clear. China’s fiscal and monetary policy are now coordinated to stimulate economic activity and drive growth in 2025, a proactive departure from the piecemeal attempts to support the economy from 2022 through mid-2024. Renewed urgency to the pro-growth policy mix has come from the imminent arrival of Trump 2.0 with widespread fears of increased tariffs impacting China’s exporters. We believe the trade policy approach is likely to be more transactional than indicated so far, while China will react with a tit-for-tat approach.

Despite the challenges and uncertainty, we believe there are healthy long-term investment opportunities in China. Many companies possess high-quality and long-term growth prospects, particularly in sectors focused on consumption recovery, technology self-sufficiency, and industrial upgrading. Furthermore, China remains deeply discounted both historically and in comparison to other emerging markets. Broader earnings revisions will take time to recover, but near-term liquidity from local investors and subsequent fiscal policies will be key factors to monitor.