UniSuper happy to top up on tech, property

UniSuper’s John Pearce sees plenty of opportunities in listed markets, but is less enthusiastic about what he sees in the unlisted space.

John Pearce, CIO of UniSuper. Hollie Adams/The Australian

While other investors have been taking profits in the big US tech names, UniSuper’s John Pearce has been topping up the $80bn super fund’s position.

“I don’t subscribe to the view that we’re in a bubble there,” Mr Pearce said. “There’s certainly frothy elements to it. If you look at an Afterpay, for example, there’s froth there. But if you look at these big tech companies, they’re trading on free cashflow yields of around 3 per cent. That is not a bubble valuation.

“We could see this volatility play out for a little while longer coming up to the election. It could get to a 20 per cent correction, but you’re not going to pick the bottom so we think it’s not a bad time to chip away.”

As well as topping up on tech stocks, Mr Pearce, who leads the investment team at the industry super fund for academics, has also been adding to positions in sectors that have been beaten down during the coronavirus pandemic, property in particular — stocks that are leveraged to a recovery but still trading well off their highs.

Stocks linked to domestic travel were “definitely worth looking at”, he said, though he is more cautious about anything related to international travel.

While Mr Pearce sees plenty of opportunities in listed markets, he is less enthusiastic about what he sees in the unlisted space.

“The problem is the markdowns we’ve seen on the unlisteds are nowhere near (what we’ve seen in) the listed market,” he said. “If you look at the unlisted airports, and we’ve got holdings in Brisbane, Adelaide, like other funds, you see markdowns in the vicinity of 15 per cent there. But Sydney Airport was down 40 per cent.

“We’re always looking for ­opportunities, but what we don’t have is a specific target for an allocation to unlisted assets. It’s not as if we have a certain percentage of our portfolio that we have to get to, and therefore have to put the money to it. If something comes along that looks interesting to us, we’ll take a look at it.”

As investors gear up for a turbulent few weeks in the run-up to the US election, Mr Pearce said he was leaning into the volatility. But he said he did not believe a Joe Biden win in November would be a negative for markets.

“The feeling is that a Biden victory is going to be bad for the markets because he’ll unwind Donald Trump’s tax cuts. Net-net, I don’t think it’s going to be that big a deal,” he said.

“If you look at the markets, when Trump introduced the tax cuts, markets got a bit of a sugar shot from it. And Biden will unwind them. But we reckon it might be, say, 5-8 per cent, but then Biden’s got a very, very ambitious stimulus program that’s going to be pretty positive for revenues generally.”

The prospect of Mr Biden repairing some of the relationships between the US and global institutions would also be a positive, Mr Pearce said, though he expected the US-China relationship to remain strained.

Mr Pearce’s comments came days after UniSuper detailed its new climate policy and the CIO told members his fund would not support Glencore’s proposed $1.5bn Valeria coal mine in Queensland, in which it has a 15 per cent stake.

“You might think that, well 15 per cent, how can you stop it? Well it turns out that some of the decisions require 100 per cent (approval), so it could be fairly problematic for them,” Mr Pearce said at a University of Melbourne event.

Glencore’s response was that it did not need UniSuper’s approval to go ahead with the project.

Mr Pearce said he would not comment on the two respective positions, but again hinted at UniSuper’s blocking power.

“The words I used pretty carefully were that there were some things that require 100 per cent approval. So our holding could be problematic for them. I’ll just leave it at that,” Mr Pearce said.

Addressing criticism that UniSuper’s climate action plan didn’t go far enough, Mr Pearce said he could never satisfy some critics.

“We think we’re making some pretty good progress. But it’s a journey,” he said.

UniSuper last week committed to achieving net zero carbon emissions in its investment portfolio by 2050 and said it would ditch investments that derived more than 10 per cent of revenue from thermal coal mining.