UniSuper’s cautionary tale after GEO option reports 89% performance fall

UniSuper has delivered a cautionary tale about investing in trends after its Global Environmental Opportunities (GEO) option was among the worst performers in the financial year 2022–23.

The $2.5 billion investment option aims to invest in a diversified portfolio of securities including international companies whose business activities seek to address current and emerging environmental issues and opportunities.

It was UniSuper’s best-performing option in both FY21 and FY20 with huge returns of 48.9 per cent during FY21 compared to returns of 17.6 per cent for its Balanced option in the same year. In the FY20 year, it achieved returns of 13.7 per cent versus just 0.9 per cent by the Balanced option.

Part of this strong GEO performance was due to the lack of fossil fuels exposure that meant it avoided the headwinds of a falling oil price at the time and from investment in Tesla.

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After FY21, Pearce said investments around the green theme were “in high demand”.

“With a torrent of money continuing to flow into ESG-themed funds, companies that are directly involved in the ‘green theme’ are in high demand. It’s got to the point where, in public markets at least, there is evidence to suggest that the growth in capital chasing the theme is much faster than the growth in investment opportunities. The result is valuations that keep rising to seemingly unjustifiable levels,” Pearce said.

However, the GEO option has seen a dramatic about-turn in FY22 with returns of 5.1 per cent during the year, half of that achieved by the default Balanced option. It is among the fund’s worst-performing options, behind only Australian bonds and listed property.

This year, Pearce’s commentary of the option instead alluded to a ‘cautionary tale’ for super funds.

“[GEO] is at the lower end of the performance scale despite the fact that it is fully invested in growth assets,” Pearce said.

“A circa 20 per cent exposure to green building was the primary drag. We need to bear in mind that GEO has been a strong performer over the long term. Since inception it has returned 13.2 per cent per annum.

“The ‘return to earth’ of the likes of GEO is a cautionary tale for those seeking to maximise returns by chasing whatever is running hot at the time.”

The best-performing investment options for the FY22–23 year was Global Companies in Asia that returned 21 per cent as China reopened from lockdown. Over 20 per cent of the option is invested in technology giants and Pearce said these have been “swept up in AI euphoria”.

This was also the case for second-best performer International Shares that returned 16 per cent thanks to its technology exposure.