Inveresk Wealth: 2025 in review

Inveresk Wealth: 2025 in review

2025 was another positive year for investment markets. In fact, it’s the third year in a row where 95% of the major asset classes had a positive year. Bitcoin was the only notable laggard, with precious metals (gold and silver) turning in a particularly strong performance, flexing their credentials as the OG stores of value.

The main themes of the 2020’s were on full display and maturing: the rise of AI, geopolitics, trade wars, and the rapid spread of technology into every corner of our lives. Social media bans, political assassinations, and trade tariffs outlined new battlegrounds, while footage of humanoid robots, Space-X rocket catches, and AI agents made the future feel imminent.

From a local perspective, there was nothing quite like seeing the pro-Palestine rallies outside of Launceston Bunnings last year to demonstrate how interconnected our world is becoming. Equally, the wreaths piled up in front of the Launceston synagogue in December, following the Bondi massacre. While there’s probably no place further away from Israel / Palestine than Launceston, the tensions still run high and play themselves out in our local communities.

Financial asset class reviews

TLDR: https://www.instagram.com/reel/DS-OrZJEdIA/?igsh=cXE2eWM1cnMzemZq

Equity markets did well in 2025. Europe and emerging markets were the standout performers, the USA did okay, and Australia lagged behind. To show how extreme the differences between regional markets can be, South Korean markets almost doubled, while Australia returned a more average 10% including dividends. Our underperformance was largely due to renewed concerns about Australian inflation, future interest rate prospects, and a rotation out of a number of quality growth stocks: CSL, WiseTech, TechnologyOne, and Life360 to name a few. The main long-term driver of stock prices, company earnings, were positive around the world, and analyst expectations remain bullish.

There are some key challenges globally with stock valuations in the USA remaining high, with the Magnificent 7 stocks (NVIDIA, Microsoft, Apple, Tesla, Amazon, Meta, Alphabet) representing about 35% of the S&P500 index and helping it to trade at a lofty 26x expected earnings. This concentration of the global index increases company specific risk and puts a lot of pressure on the execution of these mega-caps as they roll out their AI programs and resulting capital expenditures. Investor interest is increasingly moving away from the USA, towards more tangible assets, particularly materials companies (mining) and industrials, and this may well continue into 2026.

Precious metals did very well in 2025, with silver up 146%, and gold up 65% for the year. This has been linked to continued fears of the ‘debasement’ of fiat currencies, particularly the US dollar, where governments continue to spend too much money, pressure central banks to lower rates, and are unable to make hard short-term decisions. This seems to be a global phenomenon, rather than a country specific phenomenon, and Australia is just as implicated.

Bond markets were mostly stable in 2025, with the notable exception of Australia and Japan. With surprising inflation readings over 3.5% in September and October, the Australian 10-year bond yield rose sharply from 4.1% to 4.8% p.a. and led markets to consider interest rate hikes in 2026 by the RBA. Japan’s 10-year government bond is over 2%, near 27-year highs and a step change from decades of zero or negative interest rates. From a portfolio construction perspective, bonds are now pulling a lot more weight than they were during the years of zero interest rates, and we can expect reasonable yields of around 4% p.a. from this defensive asset class.

Implications for 2026

The existential implications of AI are forcing markets to deal with a huge spectrum of uncertainty and likely influencing investors to ‘cling to something knowable’. Whereas the ‘software decades’ allowed small startups to scale quickly and disrupt incumbents, the decades of AI may well favour the incumbents with the assets and scale to establish their language models in the hearts of global tech infrastructure. Outside of these easily identified incumbents (the Magnificent 7), investors are looking for other themes that will benefit: commodities, mining companies, precious metals, industrial companies with good dividends, etc. This theme looks likely to continue into 2026 as the US stock market remains expensive relative to the rest of the world.

Some of our key thoughts for investing in 2026 are below:

• Major indexes are increasingly concentrated around a few companies. The S&P500 being significantly influenced by the Magnificent 7 (35%), with the S&P500 representing 50% of the global benchmark. The ASX is no exception, with the big four banks representing about 25% of the index, and the top 10 stocks representing around 50%. Getting more active with stock selection seems wise.

• Opportunities exist outside the mega and large caps, and small/mid cap companies seem likely to continue outperformance in the year ahead.

• Australian businesses are reasonably well placed as the world looks for materials and inputs into the AI thematic, data centres, etc. Copper, iron ore, tin, rare earths etc are increasingly scarce and Australia is a trusted jurisdiction and partner.

• Australian interest rates look to hold at best, and potential rate hikes are being discussed. This may well take some momentum out of domestic property markets which had a good 2025.  

• Some pessimism will remain for SaaS (Software as a Service) companies, which some believe will become redundant in the age of agentic AI. This is likely an oversimplification, and quality SaaS platform products may well be a key beneficiary of AI agents within their systems. Potential buying opportunities here.

• Bonds will play an important role this year, particularly if there is a pull back in equity markets. A solid 4% yield, plus some more if you include corporate debt and emerging markets, sets a reasonable ‘risk free rate’ from which the growth assets can work.

After three consecutive years of strong growth, market commentators seem optimistic for the year ahead. This may be concerning in itself, and the motto of ‘be fearful when others are greedy, and greedy when others are fearful’ seems pertinent. Resisting the temptation to ‘follow the herd’ is particularly important here, and sticking to quality assets, a diversified approach, and valuation discipline remains as important as ever.   

General advice disclaimer

The information contained in this blog is of a general nature only and has been prepared without taking into account your personal objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate for your circumstances before acting on it.

Any references to financial products are generic in nature and do not constitute a recommendation, offer or invitation to buy or sell any financial product. You should obtain professional advice and read the relevant Product Disclosure Statement (PDS), Target Market Determination (TMD), or other disclosure documents before making any financial decisions.

While every effort has been made to ensure the information provided is accurate and based on reliable sources, no warranty is given as to its accuracy, reliability or completeness. Opinions expressed are subject to change without notice.

Past performance is not a reliable indicator of future performance. All investments carry risk, and returns may be positive or negative.

If you require personal financial advice that takes into account your individual situation, goals or needs, please contact a licensed financial adviser.