A $57 Billion Australia Pension Fund Keeps Faith in FAANG Stocks

(Bloomberg) -- One of Australia’s largest pension funds isn’t fazed by the dizzying run-up in technology pioneers and is sticking to its bullish stance despite warnings from some corners on extended valuations.

UniSuper Management Pty’s mainstream portfolios still see long-term potential in U.S. megacap technology firms, according to Chief Investment Officer John Pearce. Tesla Inc. and SolarEdge Technologies Inc. have been among major holdings in the outperforming Global Environmental Opportunities fund, disclosures show.

“In terms of our more mainstream portfolios, we’re still a big fan of the FAANGs,” Pearce, who oversees more than A$80 billion ($57 billion) in retirement savings, said in an interview with Bloomberg Television on Wednesday. “We’re likely to be a patient holder expecting a bit of a pullback, rather than a seller.”

The Global Environmental Opportunities fund is betting on a shift to a low-carbon economy and returned about 14% in the financial year through June, compared with the broadly flat MSCI gauge of global shares over that period. UniSuper was among the first of Australia’s large pension funds to introduce sustainable investment options more than a decade ago, where assets have swelled to about A$7 billion.

You have “the tail winds of some very powerful thematics,” Pearce said. “You’ve got the technology revolution combined with the green theme, so that’s lifting it.”

With Alphabet Inc., Microsoft Corp. and Tesla among the holdings in UniSuper’s funds, the record-setting rally in Nasdaq technology giants this year could crimp returns if it fizzles.

Tesla was the largest holding by value in the Global Environmental Opportunities fund at the end of June, with SolarEdge the third biggest. The firm is maintaining its structural overweight in technology, according to Pearce.

While some holdings, such as Tesla, can’t be expected to provide the same returns as in the recent past, the technology theme remains attractive, Pearce said in e-mailed responses to questions.

“We’ve always been overweight technology,” he added. “Whenever we take profits on technology, we sit at the edge of our seats waiting for a pullback, ready to get back in.”

Across the three sustainability funds, UniSuper also invests in mass transit firms Central Japan Railway Co. and East Japan Railway Co., which offer a “utility like return, balancing the high growth nature of stocks like Tesla,” Pearce said.

UniSuper’s sustainable options screen out any company that gets more than 5% revenue from tobacco, gaming, weapons and fossil fuel exploration. Also excluded are companies that rely on fossil fuels for their revenue. Those funds are beating returns in the default fund, which posted a 0.9% return over the 12 months through June.

The trend toward decarbonization over the next decade means “we would be optimistic for the long-term returns of these options,” Pearce said.

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