Franklin Templeton has identified ‘preparedness’ as the overarching theme for 2025, cautioning investors to adjust their expectations after two years of superior returns. “It is time to prepare for a more realistic world of more moderate returns punctuated by occasional setbacks,” says Stephen Dover, Chief Investment Strategist and Head of the Franklin Templeton Institute.
Dover outlines five key investment themes for 2025, emphasising long-term trends in society and the economy that offer durable sources of excess return. “In what follows, we consider five core themes: infrastructure, digital finance, sustainability, artificial intelligence, and demographics,” he says.
1. Infrastructure
Infrastructure is a cornerstone of long-term investment, encompassing sectors such as transportation, communication, and power generation. Dover highlights several drivers of infrastructure investment, including population growth in emerging markets, technological advancements, and climate change. He also notes that political factors, such as elections, can significantly impact capital spending and investor opportunities.
“Momentum in infrastructure projects like rebuilding the US electricity grid or creating a more secure European energy sector is unlikely to slow, even as political pendulums swing,” Dover says. These investments benefit sectors like basic materials (e.g., copper, steel, and cement) and industrials, while technological advancements in smart roads, smart grids, and rural internet also position tech companies to gain.
2. Digital Finance
“Digital finance is not just about cryptocurrencies,” Dover emphasises. Instead, it represents the transformation of how assets are originated, distributed, and held. This trend is driven by cost reduction and enhanced security, with blockchain and other platforms offering more efficient and secure methods of trading and managing financial assets.
“Opportunities initially lie in the technology sector, but the ripple effects will extend to banking, investment management, and insurance, driving sustainable profitability through innovation and efficiency,” Dover says. Central banks exploring digital finance platforms for payment systems add further weight to this theme.
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3. Sustainability
Sustainability is often narrowly associated with ESG investing, but Dover argues for a broader perspective. “Climate change is not merely an ESG criterion; it’s a present and future challenge that also offers investment opportunities,” he states. Research indicates that annual climate change costs could reach double-digit percentages of global GDP by mid-century.
Dover notes the need for investments addressing issues like water scarcity, plastic pollution, and pollination challenges, alongside climate change. “Data providers and analytics firms that offer clear metrics on sustainability will likely be key winners,” he adds, noting the growing demand for transparency in carbon emissions and workforce diversity.
4. Artificial Intelligence
AI has captivated investors, contributing to the growth of leading tech firms. However, Dover advises caution, likening the AI boom to past technological manias. “Many transformative technologies, from railroads to the internet, revolutionized industries but delivered volatile investor returns,” he warns. Instead of chasing existing AI leaders, Dover recommends an active approach to identifying companies that effectively integrate AI into business models and client experiences. “The next stage of AI’s investment potential lies in industries leveraging the technology to enhance operations and innovation,” he explains.
5. Demographics
Demographics remain a pivotal factor in global investment strategies. Aging populations in regions like North America, Europe, and East Asia contrast with youthful demographics in South Asia, Africa, and Latin America.
“Aging societies require transformative solutions, from automation in agriculture to tailored financial products for retirees,” Dover notes. Governments and financial institutions will need to address these challenges with innovative tax codes, savings incentives, and investment products.
Dover says that these five themes—infrastructure, digital finance, sustainability, AI, and demographics—are key to navigating the evolving investment landscape. “By aligning with these transformative trends, investors can position themselves for long-term success while staying prepared for potential volatility,” he says.
