Unisuper warns of fintech bubble after 0.9% yearly return

UniSuper’s CIO has warned of a bubble forming in fintechs like Afterpay and ‘environmental’ investments like Tesla.

CIO of UniSuper John Pearce. Picture: Hollie Adams

One of Australia’s most influential fund managers has warned of a bubble forming in the emerging fintech sector.

UniSuper’s chief investment officer John Pearce has declared there were “some bubble elements forming” in the tech sector, referring to Afterpay’s run on the ASX to an $18bn valuation.

“It has about eight million customers, and that’s pretty impressive, because it’s really only been the last few years that it’s taken off. But Afterpay loses about $50m a year at the moment. So, $18bn for a company that loses money,” he said. “You’re paying a very high price for that growth.”

He noted Afterpay’s market value was equivalent to that of Bendigo, Bank of Queensland and Suncorp combined and together these companies delivered a profit of $1.1bn.

Mr Pearce, who oversees $85bn in funds under management at the industry fund, was speaking as emerging buy now, pay later company Sezzle launched an $86m capital raising, and industry leader Afterpay touched a record high. Frenzy around the sector has seen Sezzle’s shares surge nearly 800 per cent since the start of April, while Afterpay is up 300 per cent in the same period.

Brokerage Morgan Stanley this week declared Afterpay could be the next $100 stock, helping to push the fintech to a high of $72.51 on Friday.

Morgan Stanley analyst Andrei Stadnik on Thursday noted that “Afterpay remains under-owned by Australian institutional investors” as he raised his price target on the stock to $101 a share.

Mr Pearce was speaking in an annual update where he revealed booming markets have fuelled the resurgence in UniSuper’s portfolio. UniSuper’s benchmark balanced fund delivered a 0.9 per cent overall positive return for the year, despite the Australian sharemarket crashing 36 per cent in March. Earlier this week AusSuper, the nation’s biggest industry fund, returned 0.52 per cent across its balanced option for the year.

Listed property was one of the worst performing parts of UniSuper’s portfolio, down 16.2 per cent, while the fund’s worst investment for the year was Scentre, down 40 per cent.

But Mr Pearce warned the sell-off in property was “a bit overdone”.

“If the tenants are going out of business, and unable to pay rents, compromises have to be made. Investors are now adjusting their expectations about rental flow and dividends, and hence the crash in stock prices,” he said.

“But it’s also hard to see what the catalyst is going to be to see these stocks increasing faster than the market in the future.”

UniSuper’s best performing option, the green-focused Global Environmental Opportunities, saw an overall return of 13.89 per cent for the year, but Mr Pearce acknowledged “questions are arising as to whether we now have overvaluation”.

“The pin-up child for this option is Tesla. It’s been the strongest contributor. It is now the most valuable car company in the world. On some metrics, we are seeing evidence of overvaluation here, but Tesla is also a classic case where I’ve got it wrong. I’m going to stop calling the top in Tesla,” he said.

“Growth prospects are fantastic, as they are with many of these companies, but you are paying a high price for the high growth prospects.”

Mr Pearce said UniSuper had “seen the easy gains in the market” but longer-term there was a need for progress in combating the coronavirus pandemic.

“The question then becomes economic conditions. Will they improve? This I have some doubts about.”