New investing playbook: Portfolio lessons from Q1 2025

Key points:

• Market leadership is shifting —Healthcare, energy, and AI infrastructure outperformed in Q1, showing that market leadership is rotating beyond mega-cap tech and rate-sensitive plays.
• Diversification is working — Regional and asset class diversification (especially into Europe, China, commodities, and fixed income) proved effective in managing volatility and capturing new opportunities.
• Adaptability is your edge — With geopolitics, trade uncertainty, and sector rotation driving returns, portfolios must evolve beyond the traditional Fed and tech-centric mindsets.

The first quarter of 2025 challenged conventional thinking. While rate cut hopes dominated headlines early in the year, markets moved on quickly as economic resilience, sector rotation, geopolitical shifts, and regional divergences took centre stage.

For long-term investors, Q1 offered valuable lessons on how to stay positioned in an environment where traditional playbooks are no longer enough.

Here are eight key strategic takeaways from Q1—and how to act on them.

1. Tariff uncertainty is a real market risk

Trade policy returned to focus as the US election narrative picked up. Even without concrete tariffs, the potential for disruption hit sentiment across global sectors like autos and semiconductors.

Investment takeaway:

Uncertainty alone can create volatility. Investors should avoid overexposure to sectors heavily reliant on cross-border trade and favour companies with diversified or domestic revenue streams.

ETF idea:

• Invesco Industrials S&P Select Sector UCITS ETF (XLIS) – diversified exposure to US industrial firms with strong local operations.

2. AI is expanding beyond ‘Mag 7’

AI-driven demand remained strong, with the rally expanding from mega-cap tech to include enablers like semiconductor firms, automation tools, and digital infrastructure providers.

Investment takeaway:

The AI opportunity is no longer concentrated in a few names. Infrastructure, chips, and cybersecurity are areas to watch as adoption spreads across sectors.

ETF ideas:

• Global X Cybersecurity UCITS ETF (BUG)
• Global X Data Center REITs & Digital Infrastructure UCITS ETF (V9N)

3. The Fed is not in control of the narrative

Markets entered 2025 pricing in aggressive Fed rate cuts. But inflation remained sticky, the labour market held firm, and tariff uncertainty has made the Fed stay cautious. As a result, interest rate expectations were dialled back significantly.

Investment takeaway:

Investors should stop relying solely on rate policy as the main driver of returns. Focus on quality businesses that can perform across different macro regimes.

ETF idea:

• iShares Edge MSCI World Quality Factor UCITS ETF (IWQU) – high-quality companies with strong fundamentals.

4. Healthcare and energy reasserted market leadership

In a volatile quarter, healthcare and energy stood out as top-performing sectors. Healthcare benefitted from its defensive qualities and ongoing innovation in biotechnology and pharmaceuticals. Energy rallied on supply disruptions and geopolitical tensions in key producing regions.

Investment takeaway:

These are not just defensive allocations—they’re outperforming growth sectors. Their return profiles and macro sensitivities offer diversification in both risk-on and risk-off conditions.

ETF ideas:

• SPDR MSCI World Health Care UCITS ETF (WHEA)
• SPDR MSCI World Energy UCITS ETF (WNRG)

5. Geopolitics isn’t just background noise anymore

Conflicts in the Middle East, shipping disruptions in the Red Sea, and rising defense budgets globally all pushed investors toward commodities, gold, and defense-related assets.

Investment takeaway:

Geopolitical risks are now a structural part of the investment landscape. They impact everything from commodity prices to trade routes and equity sector performance.

ETF ideas:

• VanEck Gold Miners UCITS ETF (GDX)
• iShares Global Aerospace & Defense UCITS ETF (DFND) – global defense companies

6. Regional diversification is delivering

European equities outperformed expectations on stronger-than-anticipated earnings and more attractive valuations. Chinese equities rebounded off multi-year lows, supported by policy easing and bargain-hunting inflows.

Investment takeaway:

US markets are no longer the only game in town. Regional diversification helps capture new growth stories and reduces exposure to domestic policy risks.

ETF ideas:

• iShares MSCI Europe UCITS ETF (IMEU) – broad European equity exposure
• KraneShares China Internet UCITS ETF (KWEB) – targeted exposure to China’s digital economy
• Invesco MSCI Emerging Markets UCITS ETF (MXFS) – for broader EM diversification

7. Commodities are an important hedge

Copper prices surged in Q1, supported by Chinese demand, global supply concerns, and long-term electrification themes. Natural gas gained amid winter demand and geopolitical disruptions.

Investment takeaway:

Commodities are providing inflation protection and thematic exposure to infrastructure and energy transitions. Copper and gas are emerging as key tactical and structural plays.

ETF ideas:

• Global X Copper Miners UCITS ETF (COPX) – for copper exposure
• Invesco Bloomberg Commodity UCITS ETF (CMOD) – access to diversified commodity exposure

8. Bonds are still a portfolio anchor

Despite fewer expected Fed cuts, bond markets remained resilient. Volatility in risk assets kept demand strong for government and high-grade credit, especially at the short end.

Investment takeaway:

Fixed income is not dead. It continues to offer diversification, income, and downside protection—particularly through short-duration and quality segments.

ETF ideas:

• Amundi US Treasury Bond 1-3yr UCITS ETF (U13H)
• Amundi EUR Short Term HY Corp Bond ESG UCITS ETF (HYS)

The playbook has changed—so should you

Q1 showed us that the old drivers—Fed policy, mega-cap tech, passive US-centric investing—are no longer the only forces shaping returns. Adaptability, diversification, and curiosity are your edge in 2025.

The investor edge in 2025 lies in:

• Seeking global opportunity
• Leaning into sector rotation
• Staying open to new asset classes and themes

Risks to watch

While Q1 2025 offered opportunities across sectors and regions, investors should stay mindful of the risks that could reshape the narrative quickly:

• Policy missteps – Central banks remain cautious, but inflation surprises or delayed cuts could disrupt both equity and bond markets.
• Geopolitical escalation – Conflicts could trigger supply shocks or volatility in commodities and currencies.
• Earnings risk – With high expectations now priced in, disappointment in earnings—especially from AI or energy-linked names—could trigger sharp pullbacks.
• Liquidity and tariff uncertainty – The rising trade tensions may cause volatility spikes.

Remaining diversified and nimble is key to navigating these risks while staying positioned for opportunity.