Words on the Year That Was

In this week’s Words on Wealth, David Hay is joined by CIO Tim Rocks to reflect on the biggest surprises of 2025 and what investors should be watching in 2026. They explore how AI has become a dominant global force, reshaping market leadership and cutting through political noise. Tim discusses Australia’s improving economic momentum, shifts in the interest-rate outlook, and the possibility of a stronger Australian dollar. They also examine where the next wave of AI beneficiaries may emerge, including in commodities and healthcare, and outline key opportunities across asset classes as the new year approaches. Tune in to find out more.

This episode is also available on Apple Podcast. 

David Hay (00:17)
Welcome back to Words on Wealth. Thank you for joining us. My name is David Hay, Investment Advisor here at Evans & Partners, and I’m joined by the ever familiar Tim Rocks, our Chief Investment Officer. Tim, welcome.

Tim Rocks (00:30)
Thank you, David.

David Hay (00:32)
Great to have you on for one of final episodes of the calendar year. Let’s have a look in the rear vision mirror. 2025, what were the big surprises from your point of view?

Tim Rocks (00:43)
Well, I’ve got to say as a macro guy, it was a lot of fun. None of it was predictable. Who would have thought if you’d had that tariff introduction, all the ridiculous US drama, and it didn’t matter one little bit. Equities ended up having the third strong year in a row. It is quite remarkable.

We can try and think about why that was the case. Probably the big thing was actually AI. AI is just part of every conversation now. And AI is now effectively a macro event, a macro factor. And I think actually, if you put it together, what we have now is AI, the potential that that’s going to have to create demand for more electricity linked in with the green energy transition.

All those things are such massive transformational, powerful effects that all the usual stuff that we talk about, know, inflation, this or that interest rates, this or that, have just faded into the background because this race for AI and all the flow and consequences are just so large and important that that’s really the only thing that matters.

David Hay (01:59)
AI trumps Trump or trumps the US? that sort one of the big keys?

Tim Rocks (02:05)
I mean, I would say without it, we might be having a very different conversation. I think it’s been very fortuitous for him that this is all occurring, nothing to do with him, but he’s going to benefit from it. He benefited from it this year. And as I said, like this is a multi-year story adding to other multi-year stories on green energy and the like. So, you know, just don’t stuff it up, Don.

David Hay (02:33)
Yeah, true. is there a normal phenomenon that’s been left on the sidelines because of AI? Is it central banks? it sort of various regions of the world? they been not ignored but not had the influence that you might have thought at the start of calendar year 2025?

Tim Rocks (02:51)
You know, that’s a really good point because even though it’s AI, it’s the US, actually the US market has underperformed this year. The second big story is how the global recovery and global markets have genuinely broadened this year. The best performing markets are smaller markets in Asia, Korea is up 70 % or something, parts of Europe.

You’ve had smaller companies apart from the US have done really well. And a little bit of what’s going on here is actually a response to Trump. You know, that whole story that Europe realised they need to get their act together, that US was going to leave them behind. So they actually started spending some money again. China, to a lesser degree, has been panicked into sort of spending money and more policy response. So, yeah, I think there is a broader story of a much more ⁓

you know, yeah, or broad, use that word here, ⁓ recovery going on that it’s easy to miss if we just, because AI captures all the headlines.

David Hay (03:57)
We might talk about some of those ⁓ investment ideas for 2026. Maybe a broader view will come into it. But let’s look from the driver’s seat, 2026. Is it more AI? Is that going to be the dominant theme? Do you feel it seems too big not to be? But are there other things we should be thinking about?

Tim Rocks (04:17)
I think from a macro perspective, it probably will be more important than everything else. What is increasingly clear is a bit of a nationalist further is really pushing these companies forward. Both the US and China now really want to dominate that space. So the next phase of this is government action to make sure there are no constraints, i.e. them pushing through.

further investment in electricity and the like, just to make sure they’re in the dominant area. So I think that’s important for 2026. Other things in the US, the other thing that Trump is trying to do, which might be successful is push US interest rates down, whether the economy needs it or not. So that could ⁓ make a difference. And actually, I need to call out Australia here too. Australia, ⁓

is actually looking the best it’s looked since, you know, that COVID kind of peak. ⁓ It doesn’t capture the headlines, but the Aussie economy is slowly creaking back into gear. The consumer started spending again around the middle of the year. Housing’s looking almost a little bubbly. And we’ve also got our own little mini data center electricity boom going on as well, which is supporting sort of business investment.

So I think the Aussie economy looks reasonably solid. So like putting all that together, the macro actually looks the best it’s look for some years. We’ve spent the last three years almost jumping at shadows thinking about what could cause a slowdown. But looking into 2026,

it’s harder to find those factors. So I think the macro does look more resilient as we go forward from here.

David Hay (06:15)
Tim you mentioned US interest rates there, potentially a politician having influence on them but Australia in interest rates it’s been thrust into the limelight a bit at the moment. What’s the takeout for 2026 as far as interest rates domestically?

Tim Rocks (06:31)
Yeah, so definitely an X factor for next year is that the RBA pretty quickly switches from cutting mode to hiking mode. We’re not definitely there yet, but we are inching in that direction. So we’ve got to watch what that might mean for range of asset classes. And one thing that I think we need to make sure we’re

least protected from is a big increase in potential for a big increase in the Aussie dollar. So the way interest rate markets are currently heading, Australian interest rates might actually be above US rates at some point next year. That hasn’t happened in a decade. And in the past that has had big impacts on the currency. So just a bit of a kind of a warning sign, you know, watch for your foreign exposure.

⁓ If you do have direct stocks, just be careful because the big rise in the Aussie dollar could suck away some returns.

David Hay (07:37)
Anything else we should be, I mean obviously the currency movement could be a big one, anything else we should be concerned or monitoring vis-a-vis what you just outlined there about Australia and the continued, you know, momentum around AI investment.

Tim Rocks (07:54)
Yeah, so on Australia, it’s definitely that kind of inflation RBA, that old school kind of macro sort of worry. If we think about the US, well, it actually does have to be AI. mean, AI is the only thing that’s mattered for the last three years and it’s gonna matter again. So we all have to be kind of experts on that. ⁓ And I don’t know the answer to that, but I think I know what to kind of look at. So we did a note a few weeks ago. I think the things that are gonna matter

is that the AI models continue to show good development, they get better, that take up of AI programs and apps continues to improve, there’s some stroke towards monetization, and that US continues to be better than China. I think those things really need to happen to make sure that those valuations of the US stocks.

⁓ Don’t come under sort of something, like just don’t disappoint. And we know what happens when things disappoint when you’re in a high model.

David Hay (08:56)
Because there seems to be a concentration in one part of the market. This strikes me as a lot of being left behind, whether it’s industrials or whether it’s emerging economies. They’ll all benefit from AI if it comes through and makes business more efficient. But there seems to a lot left behind. Is there an opportunity for those parts of the market to benefit under any scenario?

Tim Rocks (09:17)
Oh, yeah, so absolutely. I think the big game in town is to think about what is the next set of winners from AI. And I mean, it’s very obvious to me, it’s all going to be about the building the infrastructure for it, which we’ve all seen the charts of AI capex, but they’re all the projections that this is not actually the hard building already going on. When they’re doing that, what are they going to be doing? They’re going to be number one, they’re going to be using a hell of a lot of commodities.

⁓ So I think sitting in our little back pocket of the world where we have one big mine, we are one big mine, I think that is the real standout opportunity for here. I think we’re well overdue for a big commodity cycle and a lot of the steps are now in place for that to occur. So I’m actually pretty excited about that commodity, is that resource as complex?

know, warning signs around the Aussie dollar plus that’s all into it as well. But I think that’s potentially one big part of it that could play out over the next three or so now. And there are also a lot of other second order beneficiaries of AI, like people who using the programs or that kind of stuff as well. But for us, I think it’s that resources.

David Hay (10:36)
Yeah, and we can also help a bit in the energy space too, Tim.

Tim Rocks (10:39)
We we can, we can. ⁓

David Hay (10:41)
Let’s think about some things for the people to have a think about over the next few weeks as they might be doing something else, having a break. Maybe go to the asset classes. mean, fixed income, domestic, international equities. We talked a bit about international. What are we thinking about, for instance, with Australian equities? What should we be doing in portfolios? Is there a standout thing? Is it still linked to AI and energy or is there others we should be considering, for instance?

Tim Rocks (11:09)
Yeah, so if we take a perhaps a sector lens first, I think the things that stand out in AUS and globally, that commodity side number one, and it look, it is probably healthcare. Healthcare has been a total basket case. You know, some well known Aussie stocks that are causing a lot of pain. And that is generally being repeated globally, but it’s overdue. And healthcare is going to be one of

perhaps new healthcare companies, maybe not so much the old ones, but new healthcare companies are gonna be enormous beneficiaries from AI. So you need to be perhaps take some guidance as to which ones they are, but I think that healthcare specter is a big potential going on. So they’re two that I’m thinking about. It’s hard to put.

to put that for the whole Aussie market, because the whole Aussie market is pretty, to be it’s pretty dull, right? And the, you know, done the bank thing to death, and it’s very hard to justify those kind of valuations. So I think it’s much better to look below the headlines and, you know, we’ve given you some things. I think small caps generally as a group are pretty good too.

David Hay (12:28)
What about if I’ve got some bonds or the like, what’s going to happen in interest rates? Should I be leaving it variable? It sounds like rates might be, we might have seen the easing cycle, it’s starting to moving up. hence, I don’t want to be locking in any too many fixed rates at those sort of levels.

Tim Rocks (12:43)
Yep, yep. So Aussie over global because of what’s what I said with rates and and that’s right variable So sort of shorter term over longer term. I think is the way to go But yeah, and more importantly messages. There’s actually this there is plenty Plenty of product available. I think you know, the big one of big things for

Portfolios is dealing with the slow unwind of the hybrid market and needing to find alternatives. So we’re gonna have to do lots of work on portfolios over the next year or two to make that trade. But the good thing is there are options there ⁓ and I can’t go through all of them here, but there’s plenty of there in that Aussie variable short-term kind of space to fill that hole.

David Hay (13:30)
I think your message is pretty clear with respect to international but any other parts of the international market you said that the recovery broadened out as emerging markets had the potential Europe is spending more you know is the message just to broaden out your international exposure or the pits that the effects the US interest you a lot. ⁓

Tim Rocks (13:49)
I think it is broadened out. mean, we said that kind of message last year. We were right on the ⁓ but wrong on the US small caps. Got to put my hand out for that one. But ⁓ I wouldn’t change that. I think it’s still very, very much the trade that if you take those US big cap stocks out, the valuation story is nowhere near as scary as the headlines suggest.

So I think there’s plenty of stuff to invest in. You just gotta be a bit bit savvier about it. So smaller companies, some non-US exposure. I think they’re all kind of sensible themes and still opportunities there.

David Hay (14:31)
Give

me the private asset space. I many of the things that we’ve discussed today, you can access through the private, know, private asset space typically unlisted. that, and it’s something we’ve talked about a lot of the past 18 months, two years, it’s still an area to be selective and looking at.

Tim Rocks (14:46)
Yeah, think number one, think you have to now just given that equities have had such a strong run, you’ve got to be thinking about diversification. But number two, the opportunity set available to Aussie investors is so much greater than it was even a few years ago in that space. And you need to be careful. I mean, there’s plenty of headlines about private credit. We don’t think if you’re careful with your fund selection, it’s anywhere near as scary as some of those headlines might suggest.

So we’ve got a thoroughly researched list of funds that we really like. So that’s definitely one, and it’s definitely part of your solution to the hybrids issue too. And increasingly, there’s also better options available in private equity. So we’re actually gonna be talking a lot more about that over the next year. So kind of watch this space. Infrastructure is another one, plenty of really quality infrastructure, both debt and equity offerings around.

So a smattering of all of those can really give, I think a lot of base to your portfolio. Like a lot of the funds I’ve talked about there are kind of pretty solid eight, 9 % kind of deliverers. So if you have the sort of ballast for your portfolio, then you can pick and choose some equities on top of that to try and have a bit of fun.

David Hay (16:09)
Tim, I won’t hold you to an average portfolio return for next year. We’ll let you off the hook there. thank you for your insight. It’s not exactly our swan song for the year, but thanks for everything you’ve done for the advisor network and investors as well for the calendar year 2025 and bring on 2026.

Tim Rocks (16:25)
My pleasure, Hazy and thank you all to our listeners that have stuck with us through an entertaining period.

David Hay (16:34)
Thank you. We will be back soon and definitely in 2026. Thank you.