A strong June capped a robust first half for Discovery Capital Management, reinforcing Robert Citrone's belief that the next phase of the AI boom will be less about owning the biggest AI names and more about identifying the companies supplying the technology that makes AI possible. The Tiger Cub is also finding opportunities in emerging markets and positioning for a weaker U.S. dollar.
The macro/fundamental equity hedge fund gained 7.65 percent in June, bringing its year-to-date return to 27.55 percent.
“The first half of 2026 was characterized by strong performance across several of our highest-conviction investment themes, while also requiring active portfolio management through a period of elevated macro uncertainty,” Discovery told clients in its midyear forecast, obtained by Institutional Investor. “Geopolitical tensions surrounding the Strait of Hormuz, shifting expectations for interest rates, and evolving policy developments created meaningful volatility across global markets. Throughout the period, our investment approach remained consistent: maintaining core exposure to our highest-conviction themes, while actively managing portfolio risk as market conditions evolved.”
Performance was driven by Discovery’s technology investments, which kicked in 21 percent to gross gains thanks to an emphasis on artificial intelligence. Since early 2023, the firm has focused on what it describes as the unprecedented capital cycle required to support the AI infrastructure build-out.
One of its key themes entering this year was that AI would increasingly become a story of dispersion rather than direction, with returns achieved by identifying where the economic value of the AI investment cycle would accrue. According to Discovery, opportunities emerged on both the long and the short side. As the cycle evolved, the firm determined that economic value has increasingly shifted toward suppliers of the most constrained components rather than to the AI ecosystem more broadly.
As a result, its technology returns this year were driven by an investment in memory where constrained supply, accelerating demand, improving pricing, and expanding free cash flow support attractive fundamentals.
“Enterprise AI adoption remains in its early stages, and capital spending continues to exceed expectations,” Discovery stressed. “Together, these dynamics support a favorable outlook for memory and other capacity-constrained components of the AI compute ecosystem.”
Latin America was the second-biggest contributor, kicking in 9 percent to gross gains. In the report, Discovery said that LatAm remains one of its highest-conviction regional themes. “Our investment framework has never been to simply buy emerging markets because they appear inexpensive,” it explained. “Instead, we seek opportunities in countries where improving governance, policy reform, and identifiable catalysts can drive sustained capital inflows and create attractive opportunities across equities, fixed income, and currencies.”
Discovery asserted that the “backdrop across much of Latin America is one of the strongest” it has seen in decades, adding that several countries have made meaningful progress with fiscal discipline, economic reform, and market-oriented policymaking, creating a more constructive environment for both domestic investment and foreign capital.
The hedge fund is especially enthusiastic about the economic turnaround in Argentina, pointing out that President Javier Milei’s reform agenda “continues to improve policy credibility and reshape investor confidence” and that GDP returned to growth in 2025, inflation has fallen sharply from its peak, and poverty has declined to its lowest level since 2018.
Discovery says it remains “constructive on selective opportunities in Mexico” and that nearshoring and the USMCA “continue to provide long-term structural support.” Elsewhere in the region, it sees opportunities in Peru and Colombia, with improving political dynamics after recent election results strengthened the investment backdrop.
On the other hand, it says Brazil’s macro backdrop has become “more challenging,” citing elevated inflation, fiscal concerns, and the upcoming presidential election.
In Africa, Discovery is excited about Nigeria, an important contributor during the first half of the year. The hedge fund says the country remains one of the more compelling opportunities in emerging and frontier markets. “The country is early in its reform process, but the path has become increasingly constructive,” it notes. “Currency reform, subsidy removal, greater economic openness, and improving governance have begun to restore policy credibility after years of macroeconomic instability that limited foreign investment. While these reforms create periods of near-term volatility, they also lay the foundation for meaningful long-term value creation.”
Discovery plays this opportunity through liquid public companies with exposure to African infrastructure, financial services, and consumer growth.
Financials — primarily investments in government-sponsored entities — were the largest detractor for the overall portfolio during the first half.
Looking ahead, Discovery is bearish on the U.S. dollar. “We expect the dollar to gradually resume its longer-term weakening trend, particularly against select emerging-markets currencies,” it told clients. “In the near term, continued capital flows into U.S. innovation, particularly through artificial intelligence and private technology along with geopolitical uncertainty, should provide ongoing support for the dollar. The longer-term structural outlook is less favorable as capital increasingly rotates toward opportunities outside the United States.”
In general, Discovery’s market outlook remains “constructive, supported by a global liquidity backdrop that has yet to fully normalize.” On the other hand, the firm says elevated valuations, higher interest rates, concentrated investor positioning, and heightened geopolitical activity “are creating significant crosscurrents across markets, reinforcing the importance of tactical portfolio positioning.”
Discovery concludes: “We [see] opportunities to selectively add to high-conviction positions while actively managing portfolio risk as market conditions evolve.”
