Managed funds

[Shareguy]

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.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.

Good post Basil, You make some interesting points. Would be good to know how many are bailing. During the Covid period I was told that Pie funds did not have huge redemptions and I doubt Discovery have either for the diversification reasons you mention. Also I suspect that a lot of the Discovery redemptions are from investors that really shouldn't have been in this wholesale fund in the first place.

I suspect they will open up the fund to existing investors first or perhaps a new fund.

Only time will tell how this ends. Hopefully we will have a turn around soon 🙏.

[Shareguy]

As far as Pie funds go, I have been talking with another investor who made the comment that Pie Funds are now running all their investment decisions through AI as another check. Since they have done that their share pics have improved, they say.

I note to-date the one year returns are as follows.

Emerging 42 %
Growth.  25 %
Growth 2 7%
Dividend 6 %

[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.

Backing the truck up isn't working down 10.5 % for the month so far as at 18/03.
Sometimes you have to Cut,reassess,sit back and watch .....Doesn't seem to be a risk management strategy here which is disappointing .

[Shareguy]

Backing the truck up isn't working down 10.5 % for the month so far as at 18/03.
Sometimes you have to Cut,reassess,sit back and watch .....Doesn't seem to be a risk management strategy here which is disappointing .

Yes down over 13 percent so far...

[777]

How do funds with such large holdings dispose of shares without affecting the market further. 

[Basil]

How do funds with such large holdings dispose of shares without affecting the market further. 

That's the issue.  With a staggering 58% underperformance in the last year, further significant losses this month and the current extremely toxic geopolitical situation, no matter what Chris and Mark might say, they will be getting a lot of redemption requests which force the fund to sell down positions, thereby further exacerbating losses.

[Ferg]

A bit of a shocker from Discovery this morning.  6 months is down 39.4%.

[Stoploss]

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

[entrep]

I don't get it. Their language is still exactly the same, and you could argue that today's very brief memo actually has the least substance of any of their recent newsletters from the over the last several months.

AI says:

Discovery: The fund compounded at ~50% p.a. for its first three years, which is genuinely impressive. But from the September 2025 peak (262% total return) to March 2026 (119%), roughly half the cumulative gains were given back in six months. The trailing one-year return is now -11.9% and the two-year annualised is just 2.2%.

What's striking is reading the newsletters in sequence. Every single month from October onward follows the same template: acknowledge the underperformance briefly, blame external factors (resource rotation, AI fears, Middle East), reaffirm the process, promise next month will be better. In December they said February reporting would drive a re-rating. In January they said the same. In February they blamed AI disruption and Middle East events. Each month the language barely changes while the losses compound.

The March letter finally admits to an actual process error — the portfolio was overly correlated across rate-sensitive growth sectors and they failed to adapt when the RBA shifted to hikes. Fair enough. But the "enhanced process" they reference is completely empty. No detail on what's changed, no new risk limits, no concrete framework — just the words "enhanced process" and an assertion that they know how to pick stocks, written at a moment when the fund is down nearly 12% over twelve months.

The fact sheet still says "Rigorous Risk Management" on page two. Correlation analysis for a concentrated 20-stock portfolio should have been there from day one.

 

[BlackPeter]

Mmh - I guess sometimes one can recognize an investment problem just by scanning small number of posts.

Always good to read the fine print of investment opportunities: "Past performance is no indicator for future performance" ... and - Oops - they don't even provide the paperwork required to sell legally to retail investors. I'd see this as a big red flag.

If they achieve above market  returns, than clearly the only way to do this is by accepting higher risks. Great if it worked for them over the last couple of years, but surely - this does not mean it will stay this way forever.

If you have a lucky streak in the casino - do you assume that it will continue forever? Well, maybe you do. Many people do ... and often they find out too late that they did err.

Clearly not a fund I would invest material parts of our nest egg into ...

Post from December 2024. At that stage plenty of people thought that this is a really good investment opportunity. Times change.

Anyway - Good luck for holders ...

[Basil]

Discovery Fund is down 35.5% in the four months since I redeemed my investment at the end of November 2025.
31.1% of that decline was due to stock selection and only 4.4% the index itself declining.
Mind blowing underperformance over the last 2 years, the worst of it just in recent months.
What an extremely wild rollercoaster its been.  Agree 100% that better risk management protocols should have been in place from the very beginning including proper protocols to manage the size of individual positions as their share prices gained significant upward traction.

[Shareguy]

Post from December 2024. At that stage plenty of people thought that this is a really good investment opportunity. Times change.

Anyway - Good luck for holders ...

I think the problem is some people who invested in Discovery never should have in the first place. It's a long term game for wholesale investors only. No one I'm sure is happy with the performance over the last 6 months including me. One can only hope that the next six months will be better.

[Shareguy]

Its the 2 year performance of only 2.2% per annum, (9% per annum underperforming the index) that leaps off the page to me and is likely to be concerning some of the remaining investors in the fund.  It shows that beyond their initial best idea's when they founded the fund, they've been unable to sustain the initial strong performance and unwilling to recycle profits and redeploy capital into more value accretive opportunities, possibly because they simply ran out of idea's ? 

Yes it's a big concern given the rapid deterioration. However It's always easier looking back in hindsight.

The problem is that the market does not currently agree with Discovery's assessment of fair value.  Yes it's been horrible watching these conviction stocks take a battering every month over the last six with no real noticeable change in strategy. I guess i'm one of the lucky ones as I'm still up as I have been in the fund a longer time. Certainly feel for holders that are seeing their original investment being eaten up. No one likes watching seed capital disappear.

The under performance of the fund started in August 24 when they underperformed the index by 2.6 percent. The top 3 stocks according to their August report were

1. Generation Development Group
2. Life360
3. Superloop

If we compare from the March report the top 3 stocks are

1. Generation Development Group
2. Imdex
3. Zip Co

As you can see Generation Development is still number one, which suggests to me that they have been topping up along the way. As far as life 360 and others it might be that they are still in the portfolio but with a much lower weighting given the huge depreciation in the SP. It appears that Chris and Mark don't have sell out limits or if they do they are not following it with some or all of their picks.

We have had 6 months of positive returns and now we have just completed 6 months of negative returns. I can only hope that we start to see a turn around hopefully starting April.

When the market turns "AND IT WILL SAYS HISTORY" we could be once again looking at exceptional returns. We certainly saw the bounce after the Covid correction. In my opinion now is not the time to bail, but agree if we keep seeing these losses patience will be tested by even the most loyal believer.

Both Mark and Chris claim to have most of their liguid net worth invested in the fund, so they are feeling the pain financially just like the rest of us. They also have their reputation at stake as I know a lot of people are watching with interest, including other fund managers. One can only hope that they learn from their mistakes.

Only time will tell how this plays out. Hopefully I have made a good decision too review at the end of the year. We will soon see.

Timely piece in todays paper

https://www.nzherald.co.nz/rotorua-daily-post/business/iran-conflict-and-stocks-should-long-term-investors-sell-now/premium/3AXWSHUP2JCXHPJP6HYRQDJVGI/

[Basil]

Some huge moves up in Discovery portfolio stocks this afternoon.  Hope the bottom is in for you mate and there's a decent recovery as hopefully this two week ceasefire leads to a more permanent peace in the Middle East.

[Stoploss]

Some huge moves up in Discovery portfolio stocks this afternoon.  Hope the bottom is in for you mate and there's a decent recovery as hopefully this two week ceasefire leads to a more permanent peace in the Middle East.

What stocks are those ??