UniSuper’s overweight position on Australian equity income stocks has helped its balanced fund to become the highest performing in 2014, it achieved 10 per cent returns – the lowest performing fund achieved 5.3 per cent.

John Pearce, chief investment officer of UniSuper, continues to keep faith in domestic stocks despite widespread sentiment that falls in the price of iron ore and oil, coupled with a slowdown in Chinese growth bode ill for the Australian economy.

He said his bias towards Australian banks, REITS and Telstra was in sharp contrast to other high performing funds in SuperRatings’ Balanced Index which had mostly done well from overweight positions in global equities.

“The big picture has been yield,” said Pearce. “A big overweight to Australia would normally hurt if you were just index overweight, but we have been very specific for yield based strategies which we have managed in-house.”

The fund’s position of being slightly underweight Europe and overweight Asia had helped he admitted, but not as much as its domestic strategy.

While Chinese growth and the impact this had on the domestic economy was slowing down said Pearce, it was still high enough to remain positive for Australia.

“Last year (Chinese) iron ore imports were up 15 per cent on 2013, unfortunately our supply was up by 20 per cent hence the price collapse,” he said. “So this is not a story about a collapse in Chinese demand, what we are seeing is a story of excess supply, which to me is less of a concern. There is a price impact, but I am not as negative as a lot of my peers on what am I seeing.”

He also saw the oil price fall as ultimately positive for the domestic economy.

“China, India and Japan are very hungry oil importers, so they will have more cash,” he said. “If a decline in the oil price was a function of crashing demand I would be the first to say this is a huge problem and you would be very defensive. Growth in demand is only slowing, but there is still growth in demand. It is a supply story.”

He contrasted this position with a downbeat view of US equities which he thought were some of the most expensive in the world. He said the high US dollar was already impacting on profits of US companies as revealed in the current reporting season.

  • The SuperRatings Balanced Index reveals the three year average return of 12 per cent for all balanced funds for 2012-2014 was 10 bps higher than the three years leading up to the global financial crisis, 2005-2007.