However, investors should “drill into sectors” positioned to take advantage of big themes such as demographic trends, climate change and changes in global manufacturing, including realignment of global supply chains and acceleration of nearshoring, according to the asset managers.

“These themes will continue to attract investors willing to look beyond the dominant mega-cap stocks,” said Patrick McKeegan, portfolio manager at Franklin Templeton.

As an example, he pointed to the automation of production, which has been gaining momentum recently.

“This focus on automation leads to greater efficiency and flexibility in production and logistics systems,” he said.

He also highlighted the potential for increased efficiencies and synergies through scaling logistics operations, often achieved through strategic acquisitions.

Those advantages, especially in logistics, are often underappreciated, he said.

Likewise, ongoing growth drivers such as automotive electrification and data center expansion are also typically overlooked.

McKeegan pointed to TE Connectivity, a provider of connectivity solutions for multiple industries, as a potential beneficiary of these trends.

“Companies like TE Connectivity are benefiting from greater vehicle electrification and, increasingly, helping to connect Nvidia racks in data centers – a source of underappreciated growth potential,” he said.

Among its other solutions, TE designs next-generation technologies for data centers and AI connectivity.

Commenting on businesses taking advantage of emerging technologies, the portfolio manager said the evolution of generative AI, which is fueling the Magnificent Seven’s rapid growth, is unlocking opportunities through a range of new applications across a range of industries, driving companies such as semiconductor maker AMD devices used in computer processing.

Bright spots in Japan

According to French asset manager Amundi, investors looking to expand their exposure beyond US megacaps with stretched valuations can find bright spots in Japan, value in Europe and pick sector opportunities.

Amundi said some of President-elect Donald Trump’s promises, if fully implemented, such as possible deregulation and corporate tax cuts, could improve the earnings outlook for U.S. stocks outside of megacaps.

However, the firm recommended a focus on value and mid-cap investing, along with pockets of value in Europe and emerging markets, while anticipating potential declines in US growth and mega-cap stocks.

In its investment outlook for 2025 Amundi has identified opportunities in the finance, utilities, communications services and consumer discretionary sectors.

“Across global sectors, we favor a balanced position between early cyclicals and interest rate sensitive defensives, with a preference for financials, communications services and utilities,” the report said.

“Financiers, especially banks, look particularly cheap and should continue to benefit from the return of capital to shareholders. We like communications services, especially in the US, given strong earnings and reasonable valuations.”

Utilities, while attractive, look even cheaper and should benefit from lower yields across regions.

“Additionally, utilities have some exposure to the US AI theme,” it said.

Looking ahead, Amundi favors a shift to a more cyclical exposure with a focus on consumer judgment.

He also said several sectors could benefit from trends independent of the economic cycle.

“AI will remain a long-term topic, but it is important to be cautious about investing in this area due to the high valuations of the largest companies. The transition is expected to benefit software,” the announcement said.

“In the industrial sector, defense is likely to benefit from geopolitical tensions, while manufacturing restructuring will provide broader support.”

Private markets

Private markets are seen as another area offering attractive investment opportunities, given expectations for more interest rate cuts and slowing economic growth.

According to Amundi, private debt offers “attractive income” because companies still benefit from strong bargaining power when negotiating loan agreements.

McKeegan also believes that if expected rate cuts materialize, M&A activity in the private markets will pick up and cyclical headwinds will be reduced and transformed into growth catalysts

Meanwhile, Amundi identified the infrastructure sector as one of the bright spots in the private markets, given the sector’s strong growth outlook as well as risk and return diversification.

“We favor infrastructure investments because of the strong growth prospects and stable cash flow. Although volumes remain lower than a few years ago, the market is active,” the report said.

“Governments support private capital as it is needed to complement public funding in building renewable energy infrastructure, achieving transport electrification targets and digitization activities, as well as supply chains.”