��ţ��������

We believe that the trend of innovation as a driver of long-term equity market performance will continue, despite potential near-term economic challenges and tariff headwinds.

We have identified three thematic drivers of transformational innovations—Artificial intelligence, Power and resources, and Longevity—which we think will likely deliver a significant share of global corporate profit growth in the years ahead.

While recent market volatility has weighed on these sectors, we see this as an opportunity for long-term investors to build exposure to what we believe will be among the world’s fastest-growing industries. We also see compelling opportunities for sustainability-focused investors, particularly in energy and health care, given the ongoing global emphasis on energy security and improved health outcomes.

Recent tariffs have injected fresh uncertainty into the global technology sector, particularly around semiconductor exemptions, supplier cost-sharing, pricing power, and the duration of new trade barriers.

Our base case suggests a manageable 3–5% earnings-per-share (EPS) impact for most tech companies in 2025, with tech sector earnings still expected to grow by a mid-teens percentage. However, we recognize a range of possible outcomes and implications:

Manageable (3-5% EPS hit): Likely to trigger a relief rally and price to earnings (P/E) re-rating, as the market digests the limited earnings impact.

Tangible (10-15% EPS hit): Could result in range-bound trading within a 10% band in either direction, with some valuation support but limited upside.

Significant (20-25% EPS hit): Would likely drive a 10–20% downside for tech stocks, with further negative earnings revisions and heightened volatility.

Valuations for Big Tech are now more attractive, in our view, trading at 20-24x next-12-months earnings, down around 15% from last year’s peak (at the time of writing). Alongside negative headlines around tariffs and low-cost AI models, talk of weaker capex—such as Amazon’s “routine capacity management” and Microsoft’s recent data center pullback—have unsettled sentiment and put tighter focus on AI infrastructure spending. The Magnificent 7 are down nearly 25% year-to-date, compared to a 12% decline for the S&P 500, underscoring the caution that is now priced in.

Looking ahead, we expect investor focus to return to fundamentals as the quarterly reporting season begins. Key catalysts will include evidence of ongoing AI adoption, cloud growth, and updated capex guidance from leading tech firms. Our diversified AI approach favors both high-beta semiconductor exposure and more defensive software and internet names, balancing growth potential with capital preservation. With volatility likely to persist, we continue to advocate for structured strategies to help investors navigate this environment and position for a rebound as sentiment stabilizes.

The world is entering a transformative era of electricity consumption, with demand projected to grow at a breakneck pace of nearly 4% annually through 2027—a sharp acceleration from 2.5% in 2023—adding the equivalent of Japan’s yearly usage each year. This surge is fueled by rapid industrialization, widespread air conditioning adoption, broader electrification, and the explosive growth of data centers.

Structural shifts and regional trends
Advanced economies are reversing years of stagnant demand, with the US and Europe seeing renewed growth driven by electric vehicles, heat pumps, and digital infrastructure. Emerging markets continue to outpace GDP growth in electricity use, while regional disparities persist—such as Africa’s energy deficit versus booming Asian demand.

Investment opportunities across the value chain
This transformative shift highlights the urgent need for infrastructure investment to support the energy transition, AI expansion, and industrial electrification. We see compelling opportunities in power grids, renewable energy, storage, and industrial electrification. The sector trades at a discount despite expectations for superior, durable profit growth, positioning investors to benefit as fundamentals reassert themselves.

Market volatility is creating opportunities for long-term investors
Following the recent sell-off, many of these companies are now more attractive, in our view. At the time of writing, companies in our “Power and resources” selection trade at a forward price-to-earnings of 18x, compared to the MSCI ACWI’s 23x, despite our expectations for superior and more durable profit growth. Several formerly well-performing electrical equipment stocks in the strategy now trade at or below their respective sector averages, which we believe is unmerited when taking into account a wide range of AI data center capex scenarios. We note that both Microsoft and Apple have reiterated their 2025 capex figures for data center infrastructure buildout.

The longevity market is transforming the global economy as life expectancy rises and populations age. We see two main groups: “drivers” (pharma, medtech, health care services) leading advances in healthy lifespan, and “beneficiaries” (consumer, financial, real estate, and industrial sectors) adapting to evolving demographic needs.

Pharma, medtech, and health care services
US firms are at the forefront of metabolic disease innovation, particularly with GLP-1 drugs for obesity and diabetes—an area where revenue is forecast to grow at a 12% compounded annual growth rate (CAGR) through 2030. The global health care sector’s market opportunity is projected to reach USD 2.2 trillion by 2030, supported by rising demand for treatments targeting obesity, oncology, Alzheimer’s, and cardiovascular disease.

Pharmaceutical sector earnings are expected by consensus to grow by low-teen percentages this year, with some variation across companies. While potential US tariffs could impact 2025 pharma earnings, the scale remains uncertain until further policy clarity. Companies can partially mitigate short-term tariff effects, and over time, many can shift manufacturing locally to reduce long-term risks. For medtech, most US device makers manufacture domestically; we expect a 3-5% 2025 earnings per share (EPS) impact from announced tariffs, though many firms have absorbed these into guidance. Cost savings may further offset future impacts. Anticipated US regulatory announcements could also act as a positive catalyst, signaling policy stability and ongoing support for Medicare and health care innovation.

Consumer, financial, and real estate sectors
Consumer companies in healthy nutrition and wellness are well-placed to benefit from the shift toward healthy aging. Financial services firms can address growing retirement needs, with global wealth pools projected to grow 6-7% annually through 2030. Insurance and annuity products, as well as increased private market allocations, offer further opportunities. The longevity trend also supports demand for senior housing, wellness services, and specialized health care real estate, including independent and assisted living facilities.