Hello, I'm John Pearce. Welcome to this investment update. In this update, I'd like to take a look at how some of our options have fared. I'd like to explain why the Australian market has underperformed once again. And finally, I'd like to address one of the most frequently asked questions—is the tech sector in a bubble that's about to burst?
On your screen, you have the performance of four options—the best, the worst, and a couple in between. Let's start with our Balanced option, which of course is our largest option, now well over $60 billion; 10.4% for our accumulation members, 11.2% for our pension members. I'm pleased to say that this compares quite favourably with our major competitors. And that 11.2% for our pension members—that's four consecutive years of double-digit returns.
Image 1: A table showing UniSuper investment option returns for the 12-month period ended 30 June 2026. International Shares 17.9%, Balanced 10.4%, Australian Shares 4.7%, Australian Bond 1.2%. Source: UniSuper.
You might recall I've repeatedly said over the year that that was a result that was highly unlikely, if not impossible. Do you have moments in your life when you're really happy to admit that you're wrong? I'm having one of those moments. But look, it's only one-year returns, so no bragging rights.
Bottom of the table, we have the [Australian] Bond option, 1.2%. With interest rates where they are, how can a bond option only return that? The fact is, Australia has an inflation problem. And with rising inflation, we've had rising bond yields. With rising bond yields, we have falling bond prices, and hence the paltry return. The better news is that the running yield on the [Australian] Bond portfolio is now close to 5%, so if inflation can behave itself, better returns are potentially in prospect. At the top of the table, once again, our International Shares option, driven in large part by the very heavy weight into the US market, which returned over 16%.
Once again, the Australian shares option underperforming. This seems to be a perennial problem. Four out of the last five years, 11 out of the last 13 years—our Australian Shares option has underperformed the International Shares option.
Why is this the case? I'm pretty sure that most of you know the answer, but here's another way of telling the story. Have a look on your screen. You have 10 years ago, the top three companies in Australia and the top three companies in the US. And by the way, these top three are still in the top five of their respective markets.
Image 2: A table comparing the largest companies in different markets in July 2016. Australia's top three were Commonwealth Bank, Westpac, and BHP, while the top three in the US were Apple, Google, and Microsoft. Source: Bloomberg.
Imagine that you're an investor and you've got this choice. You've got old economy stocks and new economy stocks. You'd probably think that this is a fairly obvious decision, but let me tell you, at the time it wouldn't have been so obvious. Those tech stocks would have had a great run by then, and investing at those levels would have been seen as quite risky. It turns out that risk would have been well worth taking. Consider these stats. Those Australian companies, they've done alright—the combined total value has increased by just over double, about 120%. Those global companies, they've increased in value by a combined 7.5 times. That's incredible. The reality is that Australia doesn't really have a tech sector to speak of, and as we know, tech is the dominant investment theme of our generation.
As an aside, the US is not the only market with a tech story. There are others—South Korea, Taiwan, and Japan in particular. If you're wondering how those markets fared last financial year, take a look at this graph. Wow. South Korea up over 120%, Taiwan up over 80%, Japan up over 40%. Incredible numbers.
Image 3: A chart showing total share market returns by country, highlighting AI-driven markets. South Korea leads at approximately 130%, followed by Taiwan around 85%, Japan around 48%, USA around 16%, and Australia around 6%. Source: Bloomberg.
So you might be wondering, why do we bother investing in the Australian market at all? A few things here. Firstly, we have to look forward, not backwards. And looking forward, we believe the Australian market will meet the return and risk hurdles that we set for our options. Secondly, if we actually look over a much longer term, say 30 years, the Australian market has pretty much held its own versus the rest of the world. If we look over a really long period, over 100 years, the Australian market has actually been one of the best performers.
Importantly, while the Australian market may not be as exciting as the US market, it is a higher yielding market and it's going to be potentially more resilient in the event of a massive market correction, particularly a tech wreck. You might recall during the dot-com boom and bust—leading up to the bust, we had that massive rally in tech in the late 90s, and Australia didn't really participate in that. But from 2000 to 2002, the Australian market was pretty flat at the same time that the US market fell about 45%. (In) 2022, not that long ago, we had a bit of a tech wreck—the Australian market down about 2%, the US market down about 19%. So our market could be somewhat of a hedge against the possibility of a tech wreck. The question then is, are we actually going to have a bust in tech?
On balance, I don't think so for a couple of reasons. Firstly, if we look at the valuations of the so-called Magnificent Seven, they're certainly not in bubble territory to me. As a matter of fact, if you look at the rise in their valuations, it's pretty much tracked the rise in their profitability and expected profitability. And we didn't see that during the dot-com bubble and bust. The other thing is the market is discriminating between potential winners and losers. In a bubble, everything rises, and we're not seeing that and I want to illustrate with reference to one of my favourite graphs.
If you look on the screen now, you have the four big hyperscalers. These are the companies that are investing hundreds of billions of dollars of their free cash flow in chasing AI glory. And that's a bit of a concern to the market. But one company's investment is another company's revenue, and have a look at who's receiving the cheques. That's right, the semiconductor companies. Look at their free cash flow. It's huge. Last financial year, if we look at the market performance of these companies, on average, those companies on the left—down 2%. Those companies on the right, the ones receiving the cheques—up on average 138%. The rising tide is not lifting all tech boats.
Image 4: A chart showing estimated cash flow (USD billions) for major tech companies: Microsoft $39B, Google $29B, Meta $5B, and Amazon at -$7B. The combined total capital expenditure across these companies is $681B. The chart also shows the total free cash flow of major semiconductor companies: Nvidia $184B, Samsung $132B, SK Hynix $110B, Micron $54B, TSMC $46B. The combined free cash flow across these companies is $525B. Source: Coatue, based on Bloomberg consensus estimates as of 5 May 2026; for illustrative purposes only.
To be clear, I'm not suggesting there are no signs of bubbles anywhere, and I am particularly concerned about the valuations I see in some of these private markets, the unlisted assets. (The) two best examples I can give you are OpenAI and Anthropic. These are the owners of the two leading AI models, ChatGPT and Claude. Look at those valuations—close to a trillion dollars. And these are companies that are actually losing lots of money without the prospect of making profits for years to come.
Image 5: A table comparing OpenAI (ChatGPT), and Anthropic (Claude). OpenAI's current valuation is US$852B with an estimated 2026 loss of $15B to $25B, whereas Anthropic's current valuation is US$965B with an estimated 2026 loss of $5BB to $15B. Source: OpenAI, Anthropic and various news agencies; OpenAI valuation as at March 2026, Anthropic valuation as at May 2026.
I think they look a bit crazy, quite frankly, particularly when you consider that more and more users are moving to the much cheaper Chinese models. So we are avoiding investments in these types of companies.
We're also avoiding investments in other flavours of the month, such as direct investments in data centers. In fact, we've reduced our tech exposure, taking some profits. However, we are remaining quite positive on the tech sector in the medium term, so we are maintaining an overweight position in our global portfolios and accepting the fact that it could be a volatile ride.
You might be wondering why I haven't mentioned the war. The reason is because it's so fluid, and by the time this video goes to air, things have probably changed. One day, there's an announcement of peace—the next day, Iran and the US are bombing each other. As the saying goes, the first casualty of war is the truth, and this war is no different. I prefer to just concentrate on the oil price. Pre-war, oil was trading at around $65 a barrel. It shot up to $120, and now it's back around $80 a barrel. The general consensus is that even if oil trades between $100 and $120 a barrel, that won't be enough to derail the global economy. And I'm just going with that—I think that's good enough to go with. I think what's important is to block out the noise and focus on the positives in the medium term.
So—can our Balanced option record a fifth consecutive year of double-digit returns? Of course, I'm going to say that's highly unlikely, but you've heard that before.
Thank you very much for watching.
This video was recorded on 15 July 2026. It provides general information and may include general advice. It doesn't take into account your financial situation, needs or objectives. Consider your situation before making financial decisions, because we haven't, as well as the PDS and TMD relevant to you at unisuper.com.au/pds, and whether to consult a qualified financial adviser. Past performance isn't an indicator of future performance. Information is current as at 15 July 2026. Comments on the companies we invest in aren't intended as a recommendation of those companies for inclusion in personal portfolios. Holdings are current as at 15 July 2026 and are subject to change without notice. Prepared by UniSuper Management Pty Ltd (ABN 91 006 961 799, AFS No. 235907) on behalf of UniSuper Limited (ABN 54 006 027 121) the trustee of UniSuper (ABN 91 385 943 850, AFSL No.492806) the fund.
