Discover the companies backed by the world's best investors
- Salt Funds Management
- Jul 17
- 6 min read
From cricket pro to Elite Investor
Matthew Goodson, founder of Salt Funds Management, explains why growth in passive investing is letting New Zealand's active managers profit from buying index rejects on the cheap.
When people say they could have played a sport professionally, often what they really mean is: they were pretty handy around the football pitch in their teenage years, and won a couple of trophies while in the under-18s.
Not so Matthew Goodson. This New Zealand-based fund manager, a self-confessed ‘cricket nut’ as a child taught himself to bowl leg spin from a coaching manual (when the style was rare), before winning a place for a year at the elite Haileybury school in England, where the sport was at the top of the agenda.
He went on to spend six years as a first-class cricketer, playing for both Central Districts and Wellington in his home country, until he decided to dedicate his career to fund management. While he and his team mates were paid for their appearances, perhaps Goodson got tired of using all his annual leave – his day job was as an economist with a large Kiwi stockbroker - plus bouts of unpaid holiday, to cover his cricketing days.
But before he did, he even turned down a peachy job posting in Hong Kong based on his hope that he could still eke out an existence as a fully professional player.
‘There came a point in about ’94, ’95 when I realised that: ‘I think I’d prefer a professional career, rather than a sporting career.’ I might have scraped out a living but it would have been on the bones of my backside,’ Goodson told Citywire Elite Companies from his home in Auckland.
Elite player
The decision clearly wasn’t a mistake. After a seven-year stint in New York, including working for Goldman Sachs, and some jobs in New Zealand on his return, Goodson managed to spin himself and a team out of a subsidiary of Westpac Financial Services Group and set up his own firm, anchored with a contract to run what was previously in-house money.
‘That cracked the code,’ Goodson said, highlighting the difficulties of setting up a new business in New Zealand as a result of the country’s lack of scale – an essential ingredient for success in fund management.
‘We had to resource it much more deeply than they were, which was part of the whole deal. And then it went well; performance was good and we managed to win some money and it’s carried on from there.’
As well as managing several funds, Goodson is a founding director of Salt Funds Management, named after the mineral used to pay Roman soldiers during the time of the empire.
‘Roman soldiers were paid a solarium. An ounce of salt used to be worth an ounce of gold. And nowadays, of course, a solarium is called a salary. So it was an original source of wealth,’ he said. ‘It’s also incredibly hard to find a name that hasn’t been used somewhere else.’
Running high-performing funds at Salt has helped turn Goodson into an Elite Investor, among the top 3% of the more than 10,000 equity managers Citywire tracks. As at the end of May, his Salt NZ Dividend Appreciation Fund, one of several he manages, has outperformed its benchmark, the S&P/NZX 50 Gross Index, over one, three, five and 10 years, as well as since its inception in 2015. He is joined on the fund with Paul Harrison, also an Elite Investor.
The New Zealand stock market has some very particular quirks, not least that it can be highly illiquid and that professional active fund managers make up only around one fifth of participants. Goodson’s counterparties tend to be overseas investors, retail buyers and companies, often buying back their own stock.
Against the backdrop of this market structure, the rise of passive investing, combined with regular periods of illiquid trading, have opened up some intriguing opportunities as a result of the big price swings that can take place, particularly on a day when index constituents change.
Up to half Goodson’s fund’s buying and selling activity now takes place at the end of the day, when buyers and sellers are ‘matched’ during the minutes after the market close. The requirement for passive funds to buy and sell shares based on a company’s membership of an index creates huge opportunities to profit from the resulting price moves, Goodson said. It also gives him the chance to take contrarian positions against the flow of passive money.
Dividend darlings
The fund targets companies that pay sustainable and growing dividends, based on the idea that these businesses tend to outperform over time. ‘Why do they outperform? It’s probably a couple of things. One is, if a company’s paying a steadily growing dividend, that’s the board nailing their colours to the mast in terms of how the company’s really doing, as opposed to how their accounts purport that they’re doing,’ Goodson said.
‘And secondly, it gives you a window on true free cashflow generation. We try very hard to shy away from companies that are overpaying their dividends. A perfect company for us generates lots of free cashflow, uses some of that to pay a reasonable and ideally a growing dividend, uses the rest of that to reinvest in the business and earn excess returns on that investment, which helps dividend growth over time. And it’s not expensive,’ he said.
With criteria like that, Goodson knows he’s aiming high, so on the rare occasions when he finds a company that fits the bill, he will always move in heavily with a high-conviction position.
Bearish backdrop
The macroeconomic backdrop to Salt’s activities is, to say the least, a difficult one. According to HSBC, the New Zealand economy was the worst performing in the developed world last year, and is only just beginning to show signs of a recovery.
Hit hard by the Covid pandemic, the central bank unleashed a huge stimulus programme and then yanked up interest rates at the fastest pace in its history in response to soaring inflation and a huge house price bubble. When the government shut down its stimulus the country plunged into recession. Last year, the central bank changed tack and began to cut rates but critics say it acted too late and the damage was already done.
‘The economy now is in a suspended state,’ Goodson said. ‘You know it’s going to change; the lagged impact of the rate cuts is going to feed through and the provincial boom [led by rebounding dairy, beef, apples and kiwi fruit sectors] is going to feed through, but it’s not quite with us yet.’
Still, Goodson said he doesn’t invest based on the macro environment, instead choosing companies through an analysis of their fundamental qualities and only looking at the wider economics as an ‘ex post cross-check’. When interest rates fell heavily, for example, Goodson’s fund invested heavily in cyclical stocks, which tend to fare well when borrowing costs are low.
Goodson thinks President Trump’s import tariffs – currently set at 10% for both New Zealand and Australia – are not inherently problematic. The bigger ‘second-round’ risk to watch, he argues, is what tariffs will mean for China, a key trading partner for New Zealand, and global growth.
Weights and measures
Goodson’s fund invests solely in companies listed in New Zealand, unlike some of his local rivals, which stray onto Australian turf to gain exposure to its miners and banks.
Its fundamental approach is driven by valuing businesses based on their future cashflows. The fund has its own model for predicting and discounting cashflows, which weights different measures, including margins and margin sustainability, returns on invested capital and a standard set of ratings for environmental, social and governance factors. Its model also looks at prevailing investment styles.
‘We then come to a conclusion as to where this stock rates on all of these measures and we’ll give it a score,’ Goodson said, adding that he would also look at a company whose dividend was not currently high, but had the potential to be so in the future.
Goodson makes investing sound distinctly like sport, and he clearly hasn’t lost his love for the playing field. Indeed, proof, were it needed, lies in his continued passion for horse racing. He is former chairman of NZ Thoroughbred Racing, the sports governing body, and still maintains a collection of mares.
In fact, one of his horses, which he’d tried unsuccessfully to sell, won the New Zealand Derby around five years ago. He doesn’t say so, but it was most likely against the prevailing odds. And as the umpire would say: ‘That’s the over.’
Comments