Managed funds

[777]

Indeed. February was another shocker and unfortunately March hasn't started well either.

Change in their stated companies in February..  All negative

360    (10.39%)
GDG    (13.57%) 
ZIP    (27.92%)   

[Bev]

Any idea what percentage Discovery was down in Feb?  I did my final exit mid-month.

Fully expected that I might have triggered a rebound.

The Iran conflict won't be helping. 

[Basil]

Indeed. February was another shocker and unfortunately March hasn't started well either.

I don't think the money hammering of the tech sector is over and done with yet.  Could go on for quite some time.  Eventually the tide will turn and tech will be flavour of the month again.  Its been a wild rollercoaster ride for you so far eh mate.

[Shareguy]

Any idea what percentage Discovery was down in Feb?  I did my final exit mid-month.

Fully expected that I might have triggered a rebound.

The Iran conflict won't be helping. 

My account says a loss of 8.2 percent for Feb. Sorry your out Bev, but understand. 

[Shareguy]

I don't think the money hammering of the tech sector is over and done with yet.  Could go on for quite some time.  Eventually the tide will turn and tech will be flavour of the month again.  Its been a wild rollercoaster ride for you so far eh mate.

Yes it's been brutal. Can only hope that the tide will come in again soon. 

[Bev]

My account says a loss of 8.2 percent for Feb. Sorry your out Bev, but understand. 

Thanks Shareguy - I can't complain, over 40% gain for two years.  Felt I had to preserve our capital.

[Shareguy]

Feb report out. I think it's very well written. I also agree with what they are saying.

Insert from the report

19 Directors purchased stock in our companies post reporting. That's the highest level of Director buying we've seen post a reporting period.
Directors sell for many reasons, but they only buy for one:
to make money.

The tide will come in, we just might have to wait a bit longer. When it's very volatile I do my very best not to look at the portfolio too much. When the tide comes in "and it will" there might be a flood.

https://discoveryfunds.co.nz/assets/Newsletters/Discovery-February-2026.pdf

[Stoploss]

Sounds like they are backing the truck up . That didn't work last month.
Markets and cycles change , things go out of favour and you have to go with the times.
Time will tell on this one , but it is been poor money management for the last 12 months being -58.6 % to the relevant index.
 Hopefully they have learnt something from this rout and have a strategy to get more money off the table
at times, then sit on the sideline and wait for the right market conditions to evolve to re enter the market.

[entrep]

AI thought it was a very interesting set of newsletters (I gave it from Aug onwards):

This is a really interesting set of documents to read in sequence. Here's my take, covering performance, the managers' communication style, and what stands out strategically.
The performance story is striking. Over these eight months, you can watch a fund go from a position of extraordinary strength to a serious drawdown. In September 2025, the fund hit its high-water mark with 262.3% total return since inception and 53.3% annualised — genuinely exceptional numbers. By February 2026, total return had fallen to 154.6% and the annualised figure dropped to 31.4%. That means roughly 40% of the fund's cumulative gains were given back in about five months. Meanwhile, the index was broadly flat to positive over the same stretch, so the relative underperformance was severe — the fund went from 207.6% cumulative outperformance in September to just 90.6% by February.
The monthly return sequence tells the story clearly: after modest underperformance in August and September (both positive months but trailing the index), the fund posted five consecutive months of negative returns from October through February, totalling roughly -34% compounded. The index returned roughly +6% over that same period. That's a ~40 percentage point gap in half a year.
The narrative arc in the newsletters is worth paying attention to. There's a recurring pattern in the language that I think any prospective investor should notice:
Each month of underperformance is framed as an opportunity. In August, they say they've "reset" and have "fresh ideas." In October, "the opportunity is ahead." In November, "we always respond strongly." In December, they're buying into the selloff and expect February reporting to drive a re-rating. In January, they compare the period to 2022 and say "summer will come." By February, they note 19 directors buying stock in portfolio companies as validation.
The optimism is relentless and the framing barely changes despite the losses compounding. There's an almost formulaic structure: acknowledge underperformance briefly, explain it away with external factors (resource rotation, AI fears, risk-off sentiment, Middle East events), reaffirm the process, and promise better days ahead. To their credit, they do occasionally own specific mistakes — the CTD position in November is a good example where they acknowledge a genuine process failure. But broadly, the tone doesn't match the severity of what's happening to returns.
The strategy itself raises some questions over this period. The fund is concentrated (targeting ~20 holdings) and benchmark-unaware in ASX/NZX small caps. That's a profile that will inherently produce lumpy returns — big outperformance in good times, potentially painful drawdowns in bad. The early track record (inception through mid-2025) was spectacular, and concentration was a tailwind. But concentration cuts both ways, and this period showed that clearly.
A few specific strategic observations from the reports: they exited Superloop by October after it stopped working for them, they built a significant Zip Co position that went badly wrong in February (down 35% post-result on bad debt concerns), they got caught in the CTD accounting restatement, and they repeatedly leaned into the thesis that quality industrial companies were being unfairly punished by AI disruption fears and resource rotation. That thesis may ultimately prove correct, but the conviction in it cost them through this window.
The portfolio turnover also seems quite high for a supposedly long-term focused fund. In January alone they initiated four new positions and cut three. That's a lot of activity for a 20-stock portfolio and hints at a more trading-oriented approach than the "Four Ps" fundamental framework might suggest.
On the "alignment" point they emphasise repeatedly — the founders having virtually all their liquid net worth in the fund — this is genuinely meaningful and worth acknowledging. It's a strong signal of conviction and means they're feeling the pain alongside investors. But it can also create psychological pressure to swing aggressively to recover losses, which may partly explain the high turnover and increasingly aggressive positioning into the drawdown.
Overall assessment: The since-inception numbers remain impressive even after the drawdown (31.4% annualised vs 15.5% for the index through February 2026). The question for any investor is whether the early outperformance reflects genuine, repeatable skill in small-cap stock picking, or whether it reflects concentrated bets in a favourable environment that are now mean-reverting. The honest answer is that eight months of data in either direction isn't enough to know. What I'd watch for is whether the managers adapt their approach or whether the newsletters six months from now are still promising the re-rating is just around the corner.

[Dolcile]

That's actually a really good summary.

The overconfidence would be a concern for me, if I was an investor in their fund. 

[entrep]

Pretty interesting too. I am in the Salt fund.

https://www.saltfunds.co.nz/_files/ugd/9b51d8_ba83e55ab9464c0fbe908f72c0372f4d.pdf

The contrast between these two fund managers is sharp and really illuminating — both in terms of strategy, performance characteristics, and especially communication quality.
The most obvious difference is in how they think about risk. Discovery is a concentrated long-only fund swinging hard at ~20 ASX/NZX small caps. Salt is a long-short fund with 51 longs and 33 shorts, net exposure of around 52%, and an explicit mandate to deliver returns in all market environments. The result of this difference is visible in the volatility numbers: Salt's annualised volatility since inception is 6.56% versus 13.32% for the broader market — and Discovery, being concentrated long-only small caps, would almost certainly be materially higher than that market figure. Salt's near-zero correlation (0.065) to equity markets is genuinely remarkable over an 11+ year track record.
On performance, the comparison is more nuanced than it first appears. Discovery's headline numbers are higher — 31.4% annualised even after the drawdown versus Salt's 11.31% since inception. But context matters enormously. Salt has been running since July 2014, over 11 years, through multiple market regimes. Discovery has been running since September 2022, a period that was broadly very favourable for small-cap growth stocks for most of its life. Salt's risk-adjusted returns are exceptional — delivering equity-like returns at half the market's volatility with essentially no market correlation. On a Sharpe ratio basis, Salt would look far superior. And critically, Salt's return profile is far more consistent: 10% over the last six months, nearly 15% annualised over five years, with a smooth upward-sloping equity curve on that chart. Discovery's curve, by contrast, would show a rocket ship followed by a cliff.
The communication style is where the difference becomes most stark. Reading Matthew Goodson's commentary versus the Discovery newsletters feels like reading two completely different genres.
Goodson's writing is dense, specific, and intellectually honest in a way that's refreshing. He walks through macro conditions in Australia, New Zealand, and the US with concrete data points — RBA rate decisions, trimmed mean inflation figures, credit growth numbers, unemployment prints, swap rates. He names specific positions, tells you what worked, what didn't, and crucially why with actual analytical reasoning. When he discusses the AI theme hitting software stocks, he doesn't just wave his hands — he works through the specific impact on his own holdings like IPH and DUG Technology, explaining the bull case with granular detail about patent law requirements, valuation multiples, and short interest positioning. When Readytech fell 50% and management had misled him about their sales issues, he writes plainly that they were wrong, sold immediately, and it's now immaterial. No sugar-coating.
Compare that to Discovery's newsletters, which follow a near-identical template every month: brief acknowledgment of underperformance, external attribution (resource rotation, AI fears, sentiment), reaffirmation of process, and a promise that next month will be better. The analytical depth is shallow by comparison — you get a featured company write-up that reads more like a broker initiation note than genuine portfolio manager reflection. When Discovery discusses their mistakes, the framing is almost always that the market is wrong and will come around, rather than seriously interrogating whether their thesis was flawed.
The self-awareness gap is particularly notable. Goodson openly calls his CBA short a "widow-maker." He admits his commodity shorts have been painful and acknowledges he's been "lonely" in that trade, while also noting the fundamental basis for his view (record inventories) and that it's starting to work in March. He tells you his win/loss ratio was a mediocre 54% versus the 60%+ he targets. He describes covering tech shorts too early. There's a comfort with being wrong on timing while maintaining analytical rigour about the underlying thesis.
Discovery, by contrast, tends to frame every setback as temporary and every position as about to work. The January newsletter's comparison to 2022 — "buying straw hats in winter" — is evocative language but it's doing rhetorical work to avoid confronting the possibility that some of their thesis calls were simply wrong. The CTD position in November is the one exception where they engage in genuine process critique, and even there, the lesson drawn (accounting for short interest) feels somewhat narrow given the scale of the loss.
One fascinating overlap: both funds held Superloop at various points. Discovery held it as a top-3 position through mid-2025, saw it sell off after its August result, and by October noted they had reduced or exited it. Salt then bought it in the weakness around the $2.40 level and saw it rally 28.3% in February on a strong result and acquisition. That sequence nicely illustrates the different approaches — Discovery rode the momentum up and got shaken out, while Salt waited for distressed pricing and bought into forced selling.
On the AI disruption theme, both managers are navigating the same market environment, but their responses differ markedly. Discovery repeatedly characterises the AI selloff as indiscriminate and overdone, buying aggressively into it. Salt is more measured — Goodson acknowledges the structural significance of AI, works through which of his positions are actually exposed versus merely caught in the contagion, and is honest that he covered his software shorts too early to benefit. He's not making a blanket bet that the market is wrong about AI; he's doing company-by-company analysis of actual exposure.
Overall assessment: These are fundamentally different products serving different purposes. Discovery is a high-conviction, high-octane vehicle that will produce spectacular returns in favourable environments and painful drawdowns when things go wrong — the kind of fund where manager skill (or luck) in stock selection is everything. Salt is built for compounding with capital preservation, and the 11-year track record suggests genuine, repeatable skill in generating returns from both sides of the book with remarkable consistency.
If I were evaluating the quality of the managers purely based on their written communication — the depth of analysis, intellectual honesty, willingness to engage with complexity, and transparency about what went wrong — Goodson's Salt report is in a different league. It reads like someone who thinks deeply about markets and respects his investors enough to share that thinking in full. The Discovery letters read more like marketing that happens to contain a performance update.

[Sideshow Bob]

If this carries on any longer, they may have to re-name it the "Flounders Fund".....

[Basil]

Thanks entrep. I think those A.I. posts hit the nail directly on the head. 10/10 A+ analysis of the situation.

[Shareguy]

Thanks for posting above Entrep. Very interesting reading. Discovery is a high risk wholesale fund. It is not for retail investors. While you can compare Salt and Discovery you are not comparing the same funds.

Discovery has a stock limit at 10 percent on cost. Salt is 15 percent and does not state if it's on cost or value. Discovery is high risk against salts (4) on a 1-7 scale. Salt is an Australasian fund as far as diversification goes and Discovery so far are mainly all Australian stocks.

Discovery from April 2025 had 6 months of positive gains with May up over 12 percent alone. From October 2025 we have had 5 months of negative returns and March is currently down nearly 5 percent. On a purely statistical basis April onwards should be fantastic.

Discovery in three years and five months since it's inception, the founders fund annualised performance is 31.4% versus the index of 15.9%. Salts performance over three years is 16.7% per annum return.

Managed funds is a long term game and anyone that has a short term horizon in my opinion should not be investing in them. I will be reviewing Discovery at the end of the year, like I do with all my investments and make a call then. In the meantime I can only hope that Chris and Mark make more right decisions than wrong.

[Basil]

FMA is concerned about what transpires behind the cloak of "wholesale investor" category.
https://www.fma.govt.nz/library/articles/tackling-misleading-disclosure/
$250,000 is not that much these days.  I think many sins by various fund managers are hidden under the cloak of being a wholesale fund.

Outlook
Our mission is outstanding performance. We have a long track record of delivering just that.

I think that's somewhat disingenuous.
If you look at their long term performance since they were fund managers at PIE funds, (I posted my analysis a while back in this thread) for about 8 years where they averaged about 11-12% during a long bull market.  That was only average performance over that timeframe, at best.  Average that 8 years with just over 3 years with ~ 30% and you get a good 11 year average performance, certainly not outstanding, not by my reckoning anyway. 

Fact is they did well in the first two years when fresh inflows meant they could pump up their own stocks with $300m of fresh capital and collected vast amounts of extremely lucrative 20% performance fees, (the highest level of performance fees in the investment industry by a long way), none of which they are repaying now investors are left being monkey hammered with a staggering 58.6% underperformance over the last year.  Underperformance since they closed the fund and have been unable to pump up their own stocks has been extraordinary.  There's your clue as to why their first two years were so good.  Fresh inflows...which they no longer have, probably quite the opposite.

We are part way through a tech rout where performance is reverting to the mean is how I see it and I am very pleased indeed with my decision to get out of this fund at the end of November 2025, saving my capital from a very serious level of destruction since then.  I certainly wouldn't reinvest if they opened it again. These guys have no technical analysis skills in my opinion.  Who knows how reckless they are with the size of positions they hold as they grow from a claimed maximum of 10% at cost....nobody ever gets an audit report or a set of financial statements....yeah its a wholesale fund so they hide everything under that cloak of concealment. 

As I noted previously, the issue now for remaining Discovery investors is the level of redemption requests they will be getting.  58.6% underperformance for the last year is right off the charts.  Frankly I have never seen anything like that before and I doubt anyone else has either.  In my opinion is quite likely they will now be many investors getting out to lock in previous gains and that rush of selling could easily exacerbate the trend downward, just like the original rush of buying created upward momentum.  Just as well most investors I spoke with at the annual get-together in December 2024 seemed pretty well diversified and only had a moderate part of their capital in Discovery.  Good luck to Discovery investors. I hope for your sake I am wrong.