Australian Pension Fund: "Will Buy U.S. Tech Stocks on Dips"…Betting on AI Growth

Australia's major pension fund, UniSuper, has announced that it will look to buy U.S. technology stocks during any correction. Despite rising concerns over valuations, the fund's investment strategy is based on the view that artificial intelligence (AI) will drive corporate earnings growth for years to come.

Reuters Yonhap News

On July 8 (local time), John Pearce, Chief Investment Officer (CIO) of UniSuper, told Bloomberg News that U.S. technology companies are in the "sweet spot" of the AI investment cycle and stated that if the sector were to drop by 10%, "we would increase our allocation." UniSuper manages funds totaling 166 billion Australian dollars (approximately 115 billion U.S. dollars).

Pearce, the CIO, said, "Everyone is talking about a bubble, but frankly, this is not reflected in valuations." He continued, "We know that these companies are spending a lot in terms of capital expenditure, but they are fundamentally robust companies with excellent growth prospects. That's why we are very satisfied with maintaining our long positions."

Bloomberg noted that this optimism comes as tech stocks are underperforming, highlighting that investor views are divided over the long-term prospects of major U.S. cloud companies. There are growing doubts over whether the fierce competition and the massive AI investments by big tech will yield sufficient returns. However, some investors believe that the generational technological shift brought by AI will sustain growth over the coming years.

UniSuper has maintained its stance of increasing its allocation to U.S. tech stocks in recent months. In its core investment strategy, overseas stocks account for about 35% of the portfolio. The largest holdings include Nvidia, Microsoft, and Apple. Thanks to this investment approach, UniSuper's default investment option delivered a 10.4% return in the fiscal year ended June 30, marking its best performance in five years. This also exceeded the estimated median return of about 9% in the Australian pension industry.

However, Pearce, the CIO, pointed out that there are several risk factors in the market over the next 12 months. If inflation does not subside easily, the market could price in up to four interest rate hikes by the U.S. Federal Reserve (Fed), pushing the yield on 10-year U.S. Treasury bonds close to 6%. This could halt the bull market. He also highlighted that a slowdown in fundraising for AI companies requiring significant capital infusions, such as Anthropic and OpenAI, could trigger a market correction as well.

Nevertheless, Pearce, the CIO, explained that if risk factors are kept under control, any correction in the stock market should be viewed as a buying opportunity rather than a reason to change the investment approach. He said, "The market has shown it can withstand higher rates," and added, "Even if the 10-year U.S. Treasury yield is around 5%, the stock market can still rise."

This content was produced with the assistance of AI translation services.