Investments

Hello. I'm John Pearce. Welcome to this investment update.

2026 is not even two months old but it's been a fascinating start with some wild swings in the market. Today, I'd like to talk about what's hot, and what's not, and why gold is glittering. I'd like to briefly discuss what's happening in the Australian market, and finally we'll just touch on how this is all permeating into option returns.

Let's first turn to the US stock market, which we all know is the largest stock market in the world and sets the trend. Here's a graph of the S&P 500. You're probably thinking, “Where are those wild swings you were talking about? This looks pretty flat, nothing to see here.” Well, that flat graph belies the turmoil that lies beneath.

Image 1: A chart of the return of the S&P 500 Index in US dollar terms for the period 1 January 2026 to 16 February 2026, showing that the return has been flat. Source: Bloomberg.

This time, we can't blame the turmoil on Donald Trump. This time, it's all about AI—artificial intelligence. It seems to me that every few weeks, a new AI tool is announced that threatens to revolutionise an industry. The latest big release was Claude 4.5. This is owned by Anthropic and is a competitor to the likes of ChatGPT. Among many other things, Claude is potentially able to automate many of the processes we currently see in the legal profession—the point being that AI is no longer a threat for the distant future. To many, it is a clear and present danger, and right in the crosshairs is the software industry.

Getting back to that flat S&P 500—have a look what's happened to the software index. On average, American software companies have lost about 20% of their market value. Think about a couple of the giants. Salesforce—down about USD 70 billion. Adobe—down about USD 38 billion.

Image 2: A chart showing the flat S&P 500 Index (USD) versus the software index, which underperformed with a return of -20% over the period 1 January 2026 to 16 February 2026. Source: Bloomberg.

There is an old adage that software is eating the world. You know the story, when you think about what the likes of Amazon, Netflix, Facebook, Google, et cetera have done to their industries, you get the picture. Now, it's AI's turn to eat software. That's of course before AI potentially eats itself. There is an irony here, isn't there? It seems to me that the first big casualty of this tech revolution is the tech industry. And what about those market darlings? Remember the Magnificent Seven? Well, have a look at this graph. In 2026, not so magnificent. All down.

Image 3: A chart showing that the total percentage returns of the 'Magnificent Seven' technology companies have been negative over the period 1 January 2026 to 16 February 2026. In order from best to worst performing are: Meta, Alphabet (Google), Nvidia, Tesla, Apple, Amazon and Microsoft. Source: Bloomberg.

The concern here is not so much one of disruption. It's more about the investment they're making and the return on that investment. Last year, about USD 400 billion was spent on data centre build out. Chips, land, power, et cetera. This year that number is about USD 650 billion. These are really big companies but that is a lot of money. The real concern here is what's happening to all that free cash flow. That cash flow that was previously used to increase dividends, to buy back shares et cetera is now being used on chasing AI glory. Think about Google. Last year: free cash flow of around USD 74 billion. This year: zero.¹

Is this all bad news? I personally don't think so. Firstly, I think the sell-off in software is a bit overdone particularly as it relates to software that's so heavily integrated into business processes that you just can't get rid of it that quickly. I think Salesforce is a pretty good example. What about all that tech spending? Well, you have to bear in mind one company's spending is another company's revenue, so everyone benefits. That is indeed why we are seeing a broadening of the market rally outside tech. This is a very healthy development and once again demonstrates the benefits of diversification.

If the broad market is flat, and tech is down, it must mean something is up—and indeed it is. That's companies related to the resources industry. The energy index: up around 20%. The materials index: up around 17%. Why is this the case? Well, there are a couple of reasons. Firstly, companies in those sectors just got too cheap. Secondly is what the technicians call the ‘reflation trade’. What do I mean by reflation? High growth, higher inflation and relatively low interest rates. Economies are being allowed to run hot. In this environment, investors tend to favour real, tangible assets such as commodities. And what's everyone's favourite? Gold. How's gold done this year? Pretty well. Despite the recent correction, it's up about 15%.

Image 4: A chart showing the flat S&P 500 Index (USD) versus the price of gold, which outperformed with a return of approximately 15% over the period 1 January 2026 to 16 February 2026. Source: Bloomberg.

Who's buying? We hear all the anecdotes of people queuing up for hours to buy their bullion, and indeed gold is a popular one amongst retail investors. But who are the really big buyers? Well, take a look at this graph. Have a look what the Chinese central bank is up to. It's buying tens of billions of dollars in gold and selling tens of billions of dollars of US bonds. And they're not the only central bank doing it. As a matter of fact, many of the central banks that are not politically aligned to the USA are doing the same thing. So, I see this as much a political decision as an economic decision, and that's why I think it's got some room to run.

Image 5: A chart showing the change in the value of China's gold reserves versus US Treasury Bonds from 2015 to 2025. Over time, bond holdings have decreased from nearly USD 1.3 trillion to USD 623 billion while gold reserves have increased from just over 50 billion to 311 billion. Source: IFM Investors, IMF, US Treasury.

You might be wondering, “What is UniSuper’s position on gold?” Firstly, we do accept that gold is a store of value, and we do accept that it can behave as a safe haven. But gold does not produce an income. So, we think of gold as a currency. Now, we have investment principles—we think about your superannuation as your life savings. Our principles guide what we do, and it steers us away from speculating on currency movements.

So yes, it is true that we missed out on directly participating in the gold rally (we have bought gold companies). But in terms of the principles, we've also managed to avoid a disaster because of them. I'm talking about the crypto crash. Of course, bitcoin is everyone's favourite crypto. For 2026, the picture is not pretty. Unlike gold, we don't think of bitcoin as a store of value or a safe haven. We don't think of bitcoin as a legitimate currency. And indeed, if anyone tells me that bitcoin is just digital gold, I try to nod silently and just walk away.

Image 6: A chart showing the flat S&P 500 Index (USD) versus the prices of gold and bitcoin over the period 1 January 2026 to 16 February 2026. Gold has outperformed with a 15% return while bitcoin has fallen more than 20%. Source: Bloomberg.

Let's turn quickly to the Australian market. It's doing okay, slightly better than the US market—up around 2.5%. Our banks which dominate the market are doing pretty well because the economy's strong. But it's really the resources that have been the highflyers. BHP—up around 18%, it's incredible. About six months ago, you couldn't find a buyer for BHP at around $40. Today you can't find a seller at around $50. As Warren Buffett said, shares are the only thing he knows where people want more of, the more expensive they get. Go figure.

The Aussie dollar—the battling Aussie dollar—up around 6% versus the US dollar. So, the good news is your overseas trips are a bit cheaper. The not-so-good news is that international portfolios in Aussie dollar terms are negative. Once again getting back to the S&P 500, about flat for the year. But that's in US dollars. If we look at that graph in Aussie dollar terms, it's down for the year.

Image 7: A chart showing the flat return of the S&P 500 Index in US dollar terms versus the same index measured in Australian dollar terms over the period 1 January 2026 to 16 February 2026. In AUD terms, the S&P 500 Index has returned negatively. Source: Bloomberg.

Australia is trudging along okay but there is a party pooper and that's the Reserve Bank of Australia. The Reserve Bank is the first central bank to reverse the course of monetary policy and tighten rates. They're fearing that the economy is running a bit too hot, particularly inflation's out of their range. I think it was the right decision to make. As a matter of fact, I think it was just a reversal of the decision they made in August to cut rates which I believe was the wrong decision.

Regarding the all-important option returns, there's no real surprises here with returns broadly reflecting market movements. We’ll look at a selection of them. International Shares option—slightly down. Australian Shares option—slightly up. Our sustainable branded options² are underperforming their standard equivalents and that's because they are underweight the resources sector, underweight energy, underweight materials, and they are overweight the technology sector. Our Balanced option is pretty flat to start the year.³

Image 8: A table of UniSuper option returns for the period 1 January 2026 to 16 February 2026. At the top is Australian Shares (0.5%), then Balanced (0.2%), Sustainable Balanced (-0.8%) and International Shares (-1.6%). Past performance is not an indicator of future performance. Consider the PDS and TMD on our website, and your situation, before making decisions, because we haven’t. Issued by UniSuper Limited ABN 54 006 027 121 the trustee of the fund UniSuper ABN 91 385 943 850.

It's a long way to go, so I'm not going to get into any predictions about where the Balanced option is going to finish for 2026. I will however remind everyone that we've had three pretty good years. Three consecutive years of double-digit returns.⁴ The chances of another double-digit year are not particularly high. Then again, I did mention that global growth is being underpinned by some major investment super cycles. That's a positive. Either way, I think the rest of 2026 is going to be as fascinating as the start, so please stay tuned. Thank you very much for listening.

¹ Expected free cashflow based on consensus view of cashflow from operations and company guidance for capital expenditures for 2026.

² Sustainable and environmental investing means different things to different people. Different products have different investment criteria. Read our How we invest your money document to find out what sustainable and environmental investing means to us and what our investment options invest in.

³ Past performance is not an indicator of future performance. Consider the PDS and TMD on our website, and your situation, before making decisions, because we haven’t. Issued by UniSuper Limited ABN 54 006 027 121 the trustee of the fund UniSuper ABN 91 385 943 850.

⁴ UniSuper’s (tax-free) Pension Balanced option delivered double-digit returns for the calendar years 2023, 2024 and 2025. For Accumulation members, it delivered double-digit returns for 2023 and 2024 and a return of 9.3% for 2025.

The information discussed in this investment update is of a general nature and may include general advice. It doesn’t take into account your personal financial situation, needs or objectives. Before making any decision in relation to your UniSuper membership, you should consider your circumstances, the Product Disclosure Statement (PDS) and Target Market Determination (TMD) relevant to you, and whether to consult a qualified financial adviser. For a copy of the PDS and TMD, call us on 1800 331 685 or go to unisuper.com.au/pds.

Information is current as at 16 February 2026. Holdings are current as at 16 February 2026 and are subject to change without notice. Comments on the companies we invest in aren't intended as a recommendation of those companies for inclusion in personal portfolios. Certain information contained may include forward-looking statements, and we do not guarantee that these statements will eventuate. UniSuper has no obligation to provide updates or changes to the information. Returns are after fund taxes and investment expenses, but before account-based fees. Past performance is not an indicator of future performance. Our portfolios have been designed to suit us, and may not be appropriate for others.

UniSuper Advice is operated by UniSuper Management Pty Ltd ABN 91 006 961 799 (USM), which is licensed to provide financial product advice. USM is also the administrator of the fund UniSuper ABN 91 385 943 850 (UniSuper). UniSuper Limited ABN 54 006 027 121 is the trustee of UniSuper.

^* Past performance is not an indicator of future performance. Consider the Product Disclosure Statement (PDS), Target Market Determination (TMD) and your circumstances before making decisions, because we haven’t. Read the full disclaimer. 

¹ Remember,  awards and ratings are only one factor to be taken into account when deciding whether to invest in a financial product. Consider UniSuper Limited’s PDS and TMD on its website and your circumstances before making decisions, because we haven’t. Issued by UniSuper Limited (ABN 54 006 027 121) the trustee of the fund UniSuper (ABN 91 385 943 850).

^2,3 Chant West
Zenith CW Pty Ltd ABN 20 639 121 403 AFSL 226872/AFS Rep No. 1280401 Chant West Awards issued 21 May 2025 are solely statements of opinion and not a recommendation in relation to making any investment decisions. Awards are current for 12 months and subject to change at any time. Awards for previous years are for historical purposes only. Full details on Chant West Awards https://www.chantwest.com.au/fund-awards/about-the-awards/

⁴ Chant West
The Zenith CW Pty Ltd (ABN 20 639 121 403, AFSL 226872/AFS Rep No. 1280401) Chant West rating assigned June 2025 (Conservative, Conservative Balanced, Balanced, Sustainable Balanced, Growth, High Growth and Sustainable High Growth investments options). Refer to www.chantwest.com.au for full ratings information and FSG.

⁵ Lonsec
Lonsec Research Pty Ltd (ABN 11 151 658 561, AFSL 421 445) rating assigned March 2025 (Growth, High Growth, Balanced, Conservative Balanced and Conservative investment options). Visit www.lonsec.com.au for important information about Lonsec’s ratings.

⁶ Morningstar
Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), Medalist Rating™ of ‘Gold’ assigned 8 September 2025 (Conservative, Conservative Balanced, Balanced, Sustainable Balanced, Growth, High Growth and Sustainable High Growth investments options), 100% analyst driven.100% data coverage. For more information refer to Morningstar_Medalist_Rating_Disclaimer.

⁷ The information is of a general nature and doesn’t consider your personal circumstances. Before making decisions, you should consider whether the information is appropriate for your circumstances otherwise seek financial advice.