Author: Faye Layland

Roses are Red, Violets are… Also Red

At Ophir, we leave no stone unturned. During our extensive travel and company visitation programs, we hate leaving any meeting slot unfilled. And that’s exactly what led us to Red Violet all the way back in 2018.

While on a fact-finding mission to Florida to see larger listed and core portfolio companies, this obscure, $100m data analytics company accepted our meeting request.

Within a year, after a full deep dive into the industry, we made our first investment and reinvested in the company earlier this year as we gained confidence growth rates could reaccelerate to above 20%.

Source: Ophir, Bloomberg. Data as of 30 September 2025.

Red Violet is a leading provider of identity verification and fraud prevention analytics. It applies proprietary models to massive, multi-source datasets to help clients across financial services, insurance, real estate, legal, and government uncover who they’re really dealing with in real time, with high accuracy.

Its cloud-native, multi-tenant architecture enables clients to integrate easily, ingest data quickly, and access deep insights across use cases such as:

Fraud prevention and detection (e.g. digital payments, e-commerce)
Regulatory compliance (e.g. KYC/AML for banks)
Risk scoring and mitigation (e.g. insurance underwriting, claims history)
Public records and background checks (e.g. for real estate, legal, and law enforcement)

Data Done Differently

Red Violet is one of only a handful of U.S.-listed, micro-cap (<$1bn market cap) Software & IT Services companies with positive net income and a 3‑year revenue CAGR above 10%.

With a Total Addressable Market exceeding $10bn globally, and current market penetration below 1%, we believe Red Violet is in the early stages of a multi-year growth story.

Source: Red Violet Company Presentation – August 2025. Ophir.

Legacy incumbents such as Equifax, Experian, LexisNexis and TransUnion dominate the traditional credit bureau model, but Red Violet is capitalising on key advantages to gain share.

Red Violet’s proprietary data platform, IDI, was built by the same tech team behind LexisNexis and TransUnion’s platforms. This is effectively their third and most refined iteration, incorporating everything that worked well in prior versions and improving on what didn’t. With the lead developer now retired, it’s likely to remain their final iteration, giving Red Violet a uniquely battle-tested and future-proof platform.

Source: Red Violet Company Presentation – August 2025. Ophir.

Red Violet’s architecture allows for:

Faster ingestion and integration of new datasets
More accurate and dynamic modelling
Customisation across customer-specific verticals

Their technological edge, paired with strong customer validation, is allowing Red Violet to take share from legacy players.

Revenue is growing at more than +20–25% annually
It has 95%+ incremental gross margins, enabling significant operating leverage
Long-term EBITDA margins could exceed 60%, with EBITDA compounding at 30%+
Red Violet trades on a high-teens multiple of EBITDA, but we see the potential for rerating given its growth, margin profile, and balance sheet strength

Source: Red Violet Company Presentation – August 2025. Ophir.

Interesting Use Cases

Red Violet’s platform is used in ways that go far beyond traditional identity checks:

Banks stop fraud in real time on new account openings
Retailers flag “multi-drop” transactions to prevent high-value fraud
Insurance firms detect repeat claim filers or link disparate records
Real estate firms uncover bankruptcies or aliases during screening
Law enforcement uses the platform for investigations

This diversity of applications shows how embedded the platform is becoming — and how non-cyclical much of its revenue base really is.

Building Our Edge

We’ve been tracking Red Violet for over seven years. Since our initial meeting in 2018, we’ve:

Met with all major competitors, including the big credit bureaus
Held calls with dozens of customers across financial services, insurance, real estate, and government
Validated the long runway of growth through first-hand feedback on performance, accuracy, and pricing

This early access and sustained diligence has helped us build a high-conviction position before the market caught on.

Best Is Yet to Come

The stock has been a strong performer since our entry, but we think the best is yet to come:

Revenue was up 25% in 2024, hitting $75m
The business is profitable, with no debt and $36m in cash
With continued share gains and vertical expansion, we expect years of compounding ahead
And if margins continue to expand, we see 30–40% total shareholder return (TSR) potential annually for 3–4 years
With limited analyst coverage it remains a relative unknown today, but as growth continues it will attract more attention

In a world where high-growth, high-margin companies often trade at 30–40x EBITDA, Red Violet’s current high-teens valuation offers meaningful upside from multiple expansion alone.

With its clean balance sheet, niche leadership, and embedded optionality, we see Red Violet as one of the most compelling compounders in small-cap tech today.

10 Oct, 2025 Letter to Investors - September 2025

17 Oct, 2025 It's time to start thinking small.

10 Oct, 2025

Letter to Investors - September 2025

Letter to Investors • 11 mins read

In this special edition of the Letter to Investors, we’re celebrating birthdays for our Ophir Global Funds by:

Showcasing their very good one-year returns and pleasing long-term performance records
Breaking down the unique factor driving our Global Opportunities Fund’s market-beating performance
Highlighting why ‘quality’ matters too, not just ‘quantity’ when assessing a fund’s returns
Taking you “inside baseball” on the quality metrics and explaining what they reveal about the Ophir Global Opportunities Fund

Our original Aussie Ophir Opportunities Fund recently celebrated entering its “teenage” years, after hitting its thirteenth anniversary.

But two of our “other children” – the Ophir Global Funds – also had birthdays this month:

The Global Opportunities Fund turned 7 years old, delivering a standout +45.1% over the year to 30 September.
The Global High Conviction Fund turned 5 years old, with an impressive +37.3% over the same period.

Both results sit well above our long-term target of +15% per annum across all Funds.

Of course, no investor should expect results like +45% or +37% every year, that would be setting yourself up for disappointment.

But +15% per annum is what we strive for and we’re proud to have delivered it, not just in our Global Funds but across all four Ophir Funds, over the long-term.

Ophir Fund’s Performance to 30 September 2025:

Source: Ophir, Citi. Benchmarks are: for the Ophir Opportunities Fund – ASX Small Ordinaries Index TR, Ophir High Conviction Fund – 50/50 ASX Small Ordinaries Index/ASX Mid Cap Index TR, Ophir Global Opportunities Fund and Ophir Global High Conviction Fund – MSCI World SMID Cap Index NR (AUD)

However, more pleasing than volatile one-year numbers are the longer-term returns from our Global Funds.

In particular, the older sibling of the two Global Funds, the Ophir Global Opportunities Fund, has now returned +19.3% per annum after fees since its birth seven years ago, beating its benchmark by 10% per annum.

A $100,000 investment in the benchmark would have grown by an additional $86,000, while the same investment in the Global Opportunities Fund has grown by $245,000 – nearly three times as much.

That’s the power of compounding at higher returns.

What’s Driving the Performance?

Below we share an updated version of the chart first introduced in our June Letter to Investors.

It highlights the factors behind the Global Opportunities Fund’s outperformance or underperformance compared with its benchmark.

Global Opportunities Fund – multi-factor performance attribution

Source: Bloomberg. Data as of 30 September 2025. Benchmark MSCI World SMID Index NR (AUD).

As in our June Letter, the chart shows that for the Fund’s performance in the year to 30 September, +32.4% of the +26.9% outperformance (45.1% minus 18.2%), in other words more than 100% of it, was driven by Selection Effect.

Put simply, our outperformance didn’t come from factors like company size, market sensitivity (‘beta’), or industry and country allocation.

It came from stock picking.

That’s important, because it means our results aren’t just the by-product of tilting the portfolio toward common traits that anyone with a Bloomberg terminal could replicate.

Sure, it isn’t hard to assemble a 40-stock portfolio of U.S. small-cap consumer discretionary companies with certain characteristics and hope for the best. But history shows there’s little evidence that any one factor consistently outperforms over time. And when it does, market prices adjust quickly, wiping away the edge.

Instead, our outperformance comes from the long hours spent on the road, away from our families, meeting companies and digging into their ecosystems – competitors, customers, suppliers, even ex-employees.

This work helps us understand each company’s unique drivers and whether they’re likely to deliver results better than consensus expects.

We believe this, at least in part, is where our enduring edge over the market is.

Quality, Quality, Quality

When it comes to investment returns, quantity is what most people look at first. How much did you generate? Did you outperform or underperform? After all, you can only spend the returns you make.

But quality matters too.

Why? Because quality determines whether a manager’s returns are repeatable (or just luck) and how reliably they are delivered.

Some managers shine only in certain environments and struggle in others. That’s not the kind of consistency most investors want.

To measure quality in our Funds — here using the Global Opportunities Fund as the example — we track a range of key statistics.

The first three rows of the table below cover quantity: Fund returns, benchmark returns, and the difference between them (excess returns).

Then we move on to the quality measures, which reveal how consistent and sustainable those results really are.

Ophir Global Opportunities Fund Key Metrics:

Benchmark: MSCI World SMID Cap Index NR (AUD). Inception October 2018. “S.I.” stands for Since Inception.

But those measuring quality include:

Standard Deviation

This measures volatility, that math term you might remember from high school, and shows how bumpy the return journey has been for the Global Opportunities Fund compared with its benchmark.

The higher the standard deviation, the bumpier the ride. And with a concentrated portfolio, that’s to be expected. Our benchmark covers nearly 5,000 small and mid-cap stocks globally, while the Global Opportunities Fund holds only 40–50.

That extra volatility is essentially the price of admission for trying to outperform such a broad universe of stocks.

Tracking Error

Now this might sound like a wonky finance term, but it’s simple: instead of measuring the volatility of the Fund’s returns, it measures the volatility of its outperformance or underperformance each month.

Everyone would love a nice, smooth outperformance ride every month. Bernie Madoff was one of the few people to produce that, and he went to jail! (because in reality his numbers were made up).

In reality, if two funds deliver the same headline performance, most investors would prefer the one that spreads it steadily across months, rather than giving it all in a single burst with flat or negative months elsewhere.

That’s what tracking error reveals: how smooth (or wild) the outperformance ride has been. And unless you’re a thrill junkie, the lower the better.

Batting Average

No, Aussie cricket fans, this one didn’t come from us. It’s borrowed from the Americans and their love of baseball.

Batting average measures the percentage of months the Fund has outperformed its benchmark. For example, a 75% batting average means outperformance in nine of twelve months.

Like tracking error, it’s a measure of consistency. In baseball, a .300 average (30% hits vs at-bats) is considered excellent.

In funds management, the benchmark is higher: a manager typically needs at least a 50% batting average to outperform over time.

Higher is better, and at above 60%, our Global Opportunities Fund is generally excellent.

Upside/Downside Frequency

This metric takes batting average a step further. It shows how often the Fund outperforms when the market is up (upside frequency) and when the market is down (downside frequency).

Think of it like a baseball player: “Sure, you’ve got a 30% batting average overall. But what’s your average when you’re facing a fastball versus a slow ball?”

Some batters struggle against certain pitches, just as some fund managers struggle to outperform in down markets or during selloffs.

For our Global Opportunities Fund, the Upside Frequency is higher than the Downside Frequency. In other words, we outperform more often in rising markets than falling ones, but still tend to outperform in both environments.

Upside/Downside Participation

This metric goes one step further. Instead of showing how often we outperform in up or down markets, it reveals by how much.

To stick with the baseball analogy: “It’s not just whether you hit the fastball or the slow ball — it’s how many bases you get when you connect.”

Since inception, the Ophir Global Opportunities Fund has shown:

When the market rises +1% in a month, the Fund has risen +1.43% on average (143% upside participation).
When the market falls –1%, the Fund has fallen only –0.96% on average.

In short: we outperform by more in up-market months than we do in down markets.

And that’s a good thing, because over the long term, markets rise more often than they fall. In fact, 63% of the months for our benchmark have been up since our Global Opportunities Fund started in 2018.

Celebrating a Great Birthday

As unfair as it might feel to put one of your “children” under the microscope on their birthday, we hope this has given you a clearer view of the quality behind the Global Opportunities Fund’s returns.

Since its launch in 2018, the Fund has delivered +19.3% per annum after fees, beating its benchmark by +10.0% per annum. It ranks No.1 in Australia for performance in the Global Small/Mid Cap asset class since inception (Morningstar data).

Yes, the ride has been a little more volatile than the market, but that comes with running a concentrated portfolio. And while we’ve outperformed the market more than half the time on a monthly basis, the real story is that we’ve done so more often and by a greater margin in up-market months than down ones.

And with that, we want to sincerely thank the whole Ophir team for making this a great birthday to celebrate.

There will, no doubt, be tougher birthdays ahead, and we must remember that. As a retired CEO once told us, the times you remember most in your working life are the tough times, and how you came through them together.

2022 was one of those times. And looking back on our 13-year journey, it’s the year we’re most proud of, because we came together, we got better, and we pulled through.

Finally, a heartfelt thank you to you, our investors. Without your support, there would be no birthdays for our Funds.

As always, thank you for entrusting your capital with us.

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

This document has been prepared by Ophir Asset Management Pty Ltd (ABN 88 156 146 717, AFSL 420082) (“Ophir”) and contains information about one or more managed investment schemes managed by Ophir (the “Funds”) as at the date of this document. The Trust Company (RE Services) Limited ABN 45 003 278 831, the responsible entity of, and issuer of units in, the Ophir High Conviction Fund (ASX: OPH), the Ophir Global Opportunities Fund and the Ophir Global High Conviction Fund. Ophir is the trustee and issuer of the Ophir Opportunities Fund.

This is general information only and is not intended to provide you with financial advice and does not consider your investment objectives, financial situation or particular needs. You should consider your own investment objectives, financial situation and particular needs before acting upon any information provided and consider seeking advice from a financial advisor if necessary. Before making an investment decision, you should read the relevant Product Disclosure Statement (“PDS”) and Target Market Determination (“TMD”) available at www.ophiram.com or by emailing Ophir at ophir@ophiram.com. The PDS does not constitute a direct or indirect offer of securities in the US to any US person as defined in Regulation S under the Securities Act of 1993 as amended (US Securities Act).

All Ophir Funds are deemed high risk within their respective Target Market Determination documentation. Ophir does not guarantee the performance of the Funds or return of capital. An investment may achieve a lower than expected return and investors risk losing some or all of their principal investment. Past performance is not a reliable indicator of future performance. Any opinions, forecasts, estimates or projections reflect our judgment at the date of this was prepared, and are subject to change without notice. Rates of return cannot be guaranteed and any forecasts, estimates or projections as to future returns should not be relied on, as they are based on assumptions which may or may not ultimately be correct.

Actual returns could differ significantly from any forecasts, estimates or projections provided.

The Trust Company (RE Services) Limited is a part of the Perpetual group of companies. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital.

8 Sep, 2025 U.S. Reporting Season - Winners, Losers & 6 Key Themes

10 Oct, 2025 Stock in Focus - Red Violet (NASDAQ: RDVT)

8 Sep, 2025

U.S. Reporting Season - Winners, Losers & 6 Key Themes

Stock in Focus • 6 mins read

Most of the portfolio companies in our global funds reported their Q2 results in late July and early August.

Our performance during this period was solid with both of our global funds up 4-5%, compared with the benchmark return of 2.1%:

We maintained our history of owning more ‘beats’ (companies reporting better-than-expected results) than ‘meets’ and ‘misses’;
A similar number of our portfolio companies either upgraded or maintained guidance; and
Pleasingly, very few of our holdings downgraded guidance.

At Ophir, we are always looking for companies doing better than the market expects because earnings beats typically translate to share price appreciation.

With no clear business cycle, we entered Q2 with a portfolio designed to work in either a strong or weak macro environment.

That positioning certainly helped our performance.

Two companies that we have recently added to our portfolios, which thrive in strong or weak macro, include Resideo (REZI) (see below for a deeper dive) and Descartes Systems (DSGX).

These sit alongside existing names like IES Holdings (IESC) and AAR Corp (AIR), a group that lets us participate in a recovery while providing downside protection.

We looked at both businesses in more detail previously (here and here).

Below, we look at a winner and loser from results season.

But first, stepping back, there were six key issues and themes that emerged during the period that particularly gained our attention:

Investors take profits

On balance, we saw profit-taking throughout reporting season, particularly for companies whose share prices had run strongly into their results.

Companies that delivered strong quarters, often saw their share prices fade a few days after earnings.

This was particularly the case for companies with a more cyclically dependent second half.

Market breadth widens

The share price fades were a sign that investors were rotating into less well-held names.

This apparent rotation is reflected in the continued widening of market breadth.

Within the Russell 2000 index, the micro-cap subset has been outperforming over the last few months.

Source: Ophir. Bloomberg.

Rate cut prospects boost small caps

As the chance of a Fed rate cut in September increased, we saw this flow into small caps more broadly in August, with the Russell 2000 up 7% compared to the S&P 500’s 2% gain.

Source: Ophir. Bloomberg.

Direct beneficiaries of these lower rate expectations were home builders, building product suppliers and select REITs as the market anticipates housing transaction volumes to recover from their current historically low levels.

Tariff uncertainty continues

Investors questioned companies with tariff exposure that had strong quarterly results. They were concerned that pre-buying ahead of tariffs had pulled forward demand, giving the results a one-off boost.

Tech and healthcare struggle

The reporting season showed little patience for ‘good but not great’.

This was especially true in tech and software, where AI-fuelled names are facing growing fears of commoditisation.

Some examples (that we don’t hold) include The Trade Desk (TTD), HubSpot (HUBS) and Twilio (TWLO), which saw significant drawdowns in their share prices despite relatively solid results.

Healthcare was another tough spot. Investors were concerned about cost-cutting mandates (including RFK Jr. policy noise) and looming cuts to Medicare/Medicaid, and as a result, aggressively rotated out of the sector.

Positive outlooks tempered by caveats

However, when providing forward-looking statements, most companies sounded more constructive than last quarter. Though almost all added a caveat around tariffs and the consumer outlook.

Several also referenced concerns about “a left-field tweet” or regulatory surprise.

This is something investors must get used to under a Trump Administration.

Two results case studies (a winner and loser)

Below, we take a closer look at one winner and one loser from the recent results season.

The Winner – Resideo Technologies (NYSE: REZI)

Spun out of Honeywell in 2018, Resideo operates two distinct business units:

Products & Solutions (P&S): Smart thermostats, air quality monitors, fire/security systems, and
ADI Distribution: Access control, fire protection, AV, and connected home product wholesaling

We’ve known Resideo for several years and re-initiated a large position ahead of the quarter. Our thesis was simple: The P&S division was quietly outperforming peers; gross margins were improving, and the company’s valuation was highly attractive at <10x earnings.

Source: Ophir. Bloomberg.

What Drove the Result

REZI’s Q2 result delivered on all fronts:

Earnings guidance was upgraded due to stronger volumes and better margins
A legacy environmental liability from the Honeywell spin was bought out
Management announced plans to split the business into two standalone entities, unlocking appropriate multiples for each

Do We Still Own It?

Yes … and we’re still bullish.

The stock has rallied ~40% since our entry, but is still only trading on ~12x earnings.

With operational momentum accelerating, and a likely Investor Day in early 2026 to highlight the long-term earnings potential of each segment, we believe there is still meaningful upside ahead — especially if Fed rate cuts begin to support housing activity.

The Loser – Tandem Diabetes Care (NASDAQ: TNDM)

Tandem is the world’s #2 provider of insulin pumps, with its flagship t:slim X2 product integrating with CGMs (Continuous Glucose Monitors) to automate insulin delivery and improve glycaemic outcomes.

Why We Owned It

Heading into results, we believed the market was overly pessimistic and missing upside from three key drivers:

The launch of the Mobi, which is a smaller, next-gen device;
ASP (average selling price) uplift through pharmacy reimbursement; and
Early traction in Type 2 diabetes, expanding the patient pool.

With the stock heavily sold off prior to the result, we believed downside was limited and that consumables and renewals would provide valuation support.

We did extensive work, including site visits, peer calls, distributor checks, and endocrinologist interviews.

What Went Wrong

The bear case on lower U.S. patient adds played out, and Tandem took a more cautious tone on second-half growth due to a competitor launch.

While Tandem maintained its full-year revenue guidance, the mix shifted toward Europe, and the company trimmed EBITDA guidance (driven by non-cash adjustments).

Source: Ophir. Bloomberg.

Do We Still Own It?

No.

We were frustrated by the magnitude of the sell-off, particularly given revenue was unchanged. But in the U.S. market, perceived share loss is lethal. We are also aware that cheap isn’t a catalyst.

With our channel checks and industry research not as accurate as needed, we decided to exit.

While our thesis may still play out in time, it’s more valuable to reallocate capital to higher-conviction names than try to chase lost ground on Tandem.

Continuing to deliver despite macro conditions

This reporting season reaffirmed our conviction that valuation alone isn’t enough. You need the setup, the positioning, and the execution to all line up.

But we’re encouraged that even in a tough tape, our balanced, fundamentals-driven approach continues to deliver.

Our focus remains on companies with multi-year growth drivers, improving business quality, and compelling valuations… with or without macro support.

8 Sep, 2025 Letter to Investors - August 2025

10 Oct, 2025 Letter to Investors - September 2025

8 Sep, 2025

Letter to Investors - August 2025

Letter to Investors • 13 mins read

Optimism Dies Hard

In this Letter to Investors, we look at:

How share market breadth is back, with small caps posting a stellar August
The extreme valuation differential between small and large caps that suggests smalls are strongly placed to outperform in the next 5-10 years
The outlook for small caps for the next 12-18 months based on four scenarios (which scenario is most likely, and which is best for small caps)
How small caps are one of the most attractively valued asset classes anywhere in the world today, and
Why all this makes us confident that our Funds are poised to deliver 15%+ average returns in the coming years

Ophir Fund Performance – August 2025

Before we dive into the Letter, you’ll find a detailed monthly update on each of the Ophir Funds below.

The Ophir Opportunities Fund returned +10.3% net of fees in August, outperforming its benchmark which returned +8.4%, and has delivered investors +24.0% p.a. after fees since inception (August 2012).

The Ophir High Conviction Fund (ASX:OPH) investment portfolio returned +6.3% after fees in August, underperforming its benchmark which returned +7.0%, and has delivered investors +14.8% p.a. after fees since inception (August 2015). The ASX listing returned -1.9% for the month.

The Ophir Global Opportunities Fund* returned +4.9% net of fees in August, outperforming its benchmark which returned +2.1%, and has delivered investors +18.8% p.a. after fees since inception (October 2018).

The Ophir Global High Conviction Fund* returned +4.1% net of fees in August, outperforming its benchmark which returned +2.1%, and has delivered investors +14.7% p.a. after fees since inception (September 2020).

*Refers to Class A units.

Welcome to the party, pal!” – John McClane

It’s Christmas Eve 1988 in Los Angeles.

Terrorist Hans Gruber and his band of German thugs have just crashed Nakatomi Plaza’s Christmas party and are looking to rob the joint.

What Hans didn’t count on, though, is that NYPD cop John McClane is making a surprise visit to the Plaza to reconcile with his estranged wife Holly who is attending the party.

After tossing a terrorist out of a window onto an unsuspecting LAPD cop car below, McClane yells his classic line to the startled driver: “Welcome to the party, pal”.

Source: Die Hard (1988).

It was, of course, action hero Bruce Willis as McClane who delivered the line in the cult classic and holiday favourite, Die Hard. Suddenly, Arnie’s Terminator quip of “I’ll be back” had some competition for best 80s action movie one-liner

August reminded us that, despite the laundry list of macro risks, investors’ optimism too “dies hard”.

During the month, investors couldn’t be held back, and even small-cap investors got a “welcome to the party” this month.

August saw the market add more gains to the rally from April’s post Liberation Day share market low.

The S&P 500 in August was up +2.0%. U.S. small caps put on a whopping +7.0%, boosted by Fed Chair Powell opening the door to a September rate cut.

Following in the footsteps of its U.S. big brother, ASX large and small caps put on a very similar +2.7% and +8.5% respectively (ASX100 and ASX Small Ords).

Small caps to trounce large?

Share market “breadth is back baby” I can hear John McClane say.

Regular readers will know we’ve been highlighting how the epic small-cap-market underperformance over the last 4-5 years has made small-cap valuations globally versus large the cheapest in a generation (25+ years).

The mega-cap tech companies have body slammed the rest of the market for much of the last decade.

The chart below shows the different size (large/mid/small) and style (value/core/growth) segments of the U.S. share market since 2017.

The mega-cap tech poster childs, the Magnificent 7, are all large-cap growth businesses.

(Source: Piper Sandler & Co.)

But based on history, the extreme valuation differential we see now means that it’s highly likely small caps will trounce large caps over the next 5-10 years.

So what will the next 12-18 months look like?

Four Scenarios

You thought breaking Holly out of Nakatomi Plaza was tough, well short-term forecasting is the investment equivalent!

So, for this month’s Letter to Investors, we thought we’d lay out the four most likely near-term economic scenarios for U.S. small caps, which given their 65% odd share, is also likely to drive small caps globally.

The four scenarios we see immediately ahead are outlined below from most to least likely, with our best estimate for their likelihood in brackets:

1. Fed normalises rates, low growth continues (40%)

This is the most likely scenario. We’re in good company because it’s the consensus of market participants and economists.

As you can see below, the market is pricing that after being on hold so far this year, the Fed will get off the fence and recommence its rate-cutting cycle at its next meeting on 17th September (blue line).

Source: Ophir. Bloomberg.

For us as stock pickers, this is typically a good environment.

Market returns might be more modest. But when economic (1-2% forecast above) and corporate earnings growth are low, higher-growth companies that we focus on (and are experienced in finding before the market) suddenly become rare diamonds and get bid up by the market.

Scenario 1 bottom line: Moderate market returns (including small caps); best outperformance opportunity

2. Fed normalises rates, growth booms (30%)

The next most likely outcome is rates normalising lower and helping kick off an economic boom later this year and next.

For most businesses in the U.S., rates have been uncomfortably high for many years. It shows as sluggish aggregate earnings growth outside the Magnificent 7.

Combine that with Trump’s One Big Beautiful Bill – including its immediate expensing of Capex and R&D and deregulatory agenda – and some economists see U.S. real GDP boosted to near 3% next year.

This would ignite rocket fuel under the risk-on and cyclical parts of the share market, including the housing, energy, financial, materials sectors … and small caps.

For investors, these are the exciting types of environments where you make 20-50% in a year from the small-cap market.

But while great market returns in small caps could be expected, it would be a more challenging environment for us to outperform.

Why?

Because we tend to be underweight the most cyclical sectors of the share market, particularly energy, financials and materials.

Cyclicals tend to have fewer of the structural-growth businesses that we like to focus on (low-growth regional banks dominate the financial sector in the U.S.).

We also don’t have expertise in forecasting the underlying commodity prices that dominate short-term moves in energy or materials businesses.

Source: Piper Sandler

Still, in this scenario, our investors are likely to be happy because small caps will probably have ripped big time; and we’ll be happy to just keep up with that boom.

Scenario 2 bottom line: Best small-cap market returns, will be tougher for us to outperform

3. Fed cuts quickly as recession arrives (25%)

The consensus of economic forecasters puts the probability of a U.S. recession in the next 12 months in the 25-30% range (Bloomberg).

That may sound high until you realise the forecasts never get below 15%, because recessions occur, on average, about one in every seven years.

So, while recession risk is a little elevated – mostly due to risks from U.S. tariffs and a still-restrictive Fed policy rate – a recession is not the most likely outcome expected from most in the “dismal science”.

But if one did occur, then undoubtedly share markets would fall as they always have in U.S. recessions. This is the worst-case outcome for market returns in both large and small caps.

Just because the recession probability is elevated, though, there is no point getting too defensive by doing things like going to cash for two main reasons:

It’s not the most likely scenario and the cost of foregone returns could be huge if the likelier scenarios above play out; and
Even if a recession is on the cards, it’s virtually impossible to predict the exact timing of the market downturn (and subsequent recovery) that historically has always accompanied it, like you’d need to in order to be better off than just staying invested.

Nine out of 10 times in a recession small caps fall more than large caps. But there is a good case to be made that may not happen if a recession occurred today.

The last recession where large caps fell more than small caps was the Dot.com-related recession in the early 2000s.

Large caps fell more because they were so much more expensive than small caps.

Ring a bell, anyone?

Today, small caps are the cheapest versus large since just before that Dot.com recession. So it’s a real possibility that, if a recession were to rear its head today, large caps would fall more than smalls in a sell-off.

The sectors that do well in a recession are “stability” sectors like health care, consumer staples, utilities and real estate (see table below).

Source: Piper Sandler

The other group of companies that outperform in a recession are businesses whose earnings are beating market expectations. These are our forte.

And while we tend to invest less in utilities and real estate, the health care and consumer staples sectors are firmly in our wheelhouse and provide us with plenty of opportunity to outperform.

Scenario 3 bottom line: Worst market returns (though small caps may outperform); moderate outperformance opportunity

4. Inflation ramps and Fed raises rates (5%)

What happened to all that inflation we were promised by the market pundits from Trump’s tariffs?

If it turns out that material inflation is still on the way – even though the Fed playbook is to look through tariff-induced inflation – we could see higher interest rates if it feeds into higher inflation expectations.

We think this is the least likely scenario, though it’s not completely off the table.

But the Fed will have a high bar for it to decide to reverse its forecasts for rate cuts, even putting aside Trump’s pressure to stack the Federal Open Market Committee (FOMC) with sycophants to get them lower.

Investors could see this as a mini replay of what happened in 2021/2022 when rates rose, markets sold off, and small-cap growth-oriented businesses felt the worst of the valuation squeeze.

This time, though, instead of rates lifting from zero, they are already at 4.5% today in the U.S.

We are not sure the U.S. economy could handle much higher rates without causing a more serious slowing in demand and inflation.

Also, today, U.S. small caps trade on a below-average 16x price-to-earnings ratio (PE). That’s a far cry from the two standard deviations expensive 22x they traded on prior to the 2021/2022 sell-off, so they likely have less downside risk.

Source: Ophir. Bloomberg

Regardless, this scenario would likely see markets fall, though not likely as much as in the recession scenario.

It would be hard for us to outperform, though, as the faster-growing small caps we invest in would have their valuations impacted more.

Lucky it’s the least likely scenario, with probably a 5% or lower likelihood.

Scenario 4 bottom line: markets likely fall, worst outperformance opportunity

An exciting time to be a small-cap investor

Now that’s a lot of different scenarios and only one, or perhaps even a variant of one, will play out. But it’s good to understand the risks, though not be frozen by them. That’s investing.

The first two scenarios are the most likely in our view and great for Ophir investors.

The third is bad for investors, but we think there are quite good prospects that we will perform better than large caps.

The fourth is the worst but least likely.

But this is the short term: the next 12-18 months.

Investors in our Funds should have a minimum time horizon of at least five years.

And on that score global small caps are cheap. They are one of the very few asset classes you can say that about today and that’s great news.

So, as we look out over the next five years we remain confident we can achieve our internal target of 15% per annum on average – a level we have met or exceeded in all our Funds.

Valuations in our part of the market are attractive.

The team is experienced, stable and locked in.

And we remain as hungry as ever to deliver great returns for ourselves and our investors.

As John McClane might say “Yippee-ki-yay”!

As always, thank you for entrusting your capital with us.

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

Actual returns could differ significantly from any forecasts, estimates or projections provided.

11 Aug, 2025 Letter to Investors - July 2025

8 Sep, 2025 U.S. Reporting Season - Winners, Losers & 6 Key Themes

11 Aug, 2025

Letter to Investors - July 2025

Letter to Investors • 16 mins read

In this Letter to Investors, we explore:

How long markets can continue to ignore U.S. tariff dramas, as they did in July
Why employment and politics have significantly increased the odds of a Fed rate cut
The promising signs that small caps are shifting from facing ‘headwinds’ to ‘tailwinds’ (helped by rate cuts)
Why we’re untroubled by the Japanese market’s impact on our Global Opportunities Fund’s relative performance in July, and
Some great news for the Ophir Funds in Morningstar’s latest performance rankings
An uncovered gem – a US$6.6bn portfolio company exposed to the AI thematic with no analyst coverage.

Ophir Fund Performance – July 2025

Before we dive into the Letter, you’ll find a detailed monthly update on each of the Ophir Funds below.

The Ophir Opportunities Fund returned +3.0% net of fees in July, outperforming its benchmark which returned +2.8%, and has delivered investors +23.3% p.a. after fees since inception (August 2012).

The Ophir High Conviction Fund (ASX:OPH) investment portfolio returned 3.4% after fees in July, underperforming its benchmark which returned +3.6%, and has delivered investors +14.2% p.a. after fees since inception (August 2015). The ASX listing returned +2.6% for the month.

The Ophir Global Opportunities Fund (Class A) returned +2.4% net of fees in July, underperforming its benchmark which returned +2.8%, and has delivered investors +18.2% p.a. after fees since inception (October 2018).

The Ophir Global High Conviction Fund (Class A) returned +1.3% net of fees in July, underperforming its benchmark which returned +2.8%, and has delivered investors +14.0% p.a. after fees since inception (September 2020).

Mo’ Tariffs, Mo’ Problems?

Global trade policy uncertainty rose again in July, but this time, share markets didn’t react.

Markets rose in July, with the S&P 500, Russell 2000, ASX 200 and ASX Small Ordinaries up +2.3%, +1.7%, +2.4% and +2.8% respectively.

Tariff fatigue has clearly set in. The markets have moved on.

But the coming U.S. economic data is almost certain to have a ‘stagflationary’ whiff to it over the next few months, and the big question will be: will the market continue to look through tariffs?

With the U.S. and its trading partners striking tariff ‘deals’ in July, and the U.S. handing many more countries their new tariff rates on 1 August, it’s becoming increasingly clear the U.S.’s new effective tariff rate will settle somewhere around 15%. That’s a level we have to go back to the 1930s to see.

So far, the incoming data suggests that it’s U.S. importers that are ‘eating’ the lion’s share of the tariffs rather than passing them on.

On the other side of the ledger, the Trump Administration’s One Big Beautiful Bill (OBBB), which just passed Congress, has some big tax relief for business, including immediate expensing (100%) of capital expenditure and R&D.

What the U.S. government takes with one hand from domestic corporates, is given back to a degree. Some estimates suggest it’s giving more than it’s taking.

Although the sequencing will be important for the macro data. At a company level, there will definitely be the ‘haves’ (think those with primarily U.S. production and big capex budgets) and the ‘have nots’ (those with supply chains in highly tariffed countries that are capital light).

A U.S. rate cut in September becomes almost certain

The other big question is: how soon will the Fed begin cutting rates again? And what does that mean for the small cap market we play in?

The answer is that a Fed rate cut is now more likely for two reasons.

The first is a weak jobs market.

As many who follow markets would know, on 1 August, the U.S. received a bad jobs report, with job growth in July slower than expected.

More importantly, job growth in the prior two months was revised down by 258,000 jobs.

In a shock move, President Trump fired the economist heading the statistical agency responsible for the numbers. Is it a case of shooting the messenger, or a leader being fired for not providing accurate enough numbers? Economists would argue the prior month revisions are par for the course as more data comes through.

Whatever the answer, the U.S. jobs market is softer than once thought, and this has increased expectations for Fed cuts. Before the jobs report, the prospect of a September Fed rate cut was about 50/50. It now looks like a near certainty.

The market is now predicting 2.5 rate cuts (of 0.25% size) before year end. Given the Fed meets three more times before year end, that is almost a cut at each meeting.

This would be a welcome relief for borrowers because the Fed has been on hold since December last year, when it paused the current rate cutting cycle.

Bad Jobs Report Increases Expected Rate Cuts:

Source: Bloomberg. Data as of 6^th August 2025

“Stubborn moron,” “very stupid person,” “total loser,” “too political,” “low IQ,” and should be “put out to pasture”

The second reason rate cuts are likely more imminent is politics.

The words above are just a few that President Trump has used to describe the Fed Chair Jerome Powell this year for not cutting rates.

It is not only the jobs market that has been putting pressure on the Fed to cut!

With the recent resignation of a voting Fed Governor, Trump now has an early opportunity to appoint a replacement likely to support additional rate cuts within the Fed.

This new appointment to the Federal Open Market Committee (FOMC) will also likely be first in line as Trump’s pick to replace Powell when he is scheduled to step down in May next year (unless Trump removes him for cause before then!).

The point is that politics, and now the macro data, both suggest a resumption of the Fed’s rate cutting cycle is imminent.

Small caps shifting from ‘headwinds’ to ‘tailwinds’

As we’ve been saying for some time now, we think this, looming rate cuts, is THE precondition for small caps to start outperforming.

We have started to see some of this outperformance, and more breadth, more recently. The market’s recovery from its post Liberation Day lows in mid-April is no longer simply dominated by the biggest companies.

Bad Breadth – a fresh mint for small caps:

Source: Bloomberg, Ophir. Data as of 4 August 2025.

As you can see above, the S&P 500 (orange line) rebounded from April to July. This has coincided with micro caps outperforming small caps (brown line), and small caps outperforming an equally weighted basket of large caps (black line).

This type of market breadth, with micro and small caps outperforming, has been very rare over the last few years.

As the market anticipates a resumption of rate cuts, we watch closely to see whether this marks the beginning of sustained small cap outperformance.

It should be, because rate cuts benefit small caps for two main reasons:

They have more floating rate debt and are more economically sensitive, so they benefit more as rates fall; and
Lower rates encourage more risk-taking by investors, often spurring them to invest further down the market capitalisation spectrum.

We don’t speak Japanese

So how did our Funds perform in July?

In our recently reopened, and No. 1-ranked since inception, Global Opportunities Fund, performance was strong in an absolute sense, up +2.4%.

The Fund did lag the benchmark by -0.4% during the month. It was, however, due some slight underperformance given its +41.8% return for the year to 30 June, well ahead of the benchmark’s +18.7% return.

Global Opportunities Fund Factors in July:

Source: Bloomberg. Data as of 31 July 2025. Benchmark: MSCI World SMID Index

When we look at the performance attribution for July, as you can see in the chart above, three things stood out to us:

Stock picking (Selection Effect) added little. Virtually all our companies don’t report Q2 earnings until August, so there was little stock-specific news on our companies to get the market excited. Stay tuned for next month’s result, though. (HINT: so far so good in the month-to-date.)
Size was actually a slight tailwind. Remember our average company size is in the AUD$4-5 billion range. That’s a little bit smaller than the average company in the MSCI World SMID Cap benchmark. And small caps outperformed mid-caps during the month. Micro-caps (the smallest size cohort) outperformed both! This is a really interesting development because over the last four years, the smaller the size of a company, the worse its share price performance has tended to be globally. As we explored above, there are good signs this is switching to a tailwind.
Country was a -0.6% detractor to our relative performance compared to the benchmark. Why? The Japanese share market was the major standout performing country or region in our benchmark in July, and we don’t invest there. Why not? We don’t speak Japanese. In all the other major countries we invest into – the United States, Canada, United Kingdom, Germany, Netherlands, Switzerland and Sweden – we can go into those meetings with company management and speak English, be understood and understand them just fine. Our benchmark has about 4,500 companies, and Japan represents just around 10% of our benchmark. We don’t need to invest everywhere, just where our process works best. And not speaking the language in Japan, unfortunately, at this time, makes it very tough to gain the insights we need to invest.

Morningstar Magic

Finally, we wanted to leave you with some recent good news on the performance rankings of our ‘Aussie’ Ophir Opportunities Fund and our Global Opportunities Fund.

Opportunities Fund’s Rankings:

The data is in for competitors in the key Morningstar database to 30 June 2025, and as you can see above, we have some great results to share:

Our original Ophir Opportunities Fund, which started in 2012 and has returned +23.2% per annum net of fees, is now ranked No. 1 for performance in Australian small/mid caps on a 1, 2, 3, 7, 10, 12 and since inception basis.
While that Fund hard closed at capacity in 2015, our Global Opportunities Fund, which is open and run under the same investment process and shares many of the same team members that worked on that original Fund, is ranked No. 1 on a 1, 2, 3 and since inception in 2018 basis in Global small/mid caps (funds with >$50 million in funds under management)

The open-for-investment Global Opportunities Fund appears to be tracing the same path as our closed-at-capacity Ophir Opportunities Fund.

It’s been hard work and a big team effort, but we wouldn’t have the pleasure of doing what we love every day without the support of our fellow investors. So we sincerely thank you.

We also remain acutely aware that these are just numbers on a page for new investors in our Funds. Our job is to keep it up, so they can have a good experience too, and that’s something we are passionately committed to.

Stock in Focus: IES Holdings Inc.

An Uncovered Gem

At Ophir, we typically don’t find our best investments by running traditional stock screens. Instead, we uncover opportunities by diving deeply into adjacent industries and meeting with people on the ground.

We don’t want to risk missing hidden gems that might otherwise get screened out.

This month’s stock in focus is the perfect example.

If we had relied on a screen, we would never have found IES Holdings (NASDAQ: IESC), a US$6.6 billion company with no analyst coverage.

It truly is an uncovered gem.

Leaving no stone unturned

Two years ago, while most attention was focused on the most obvious beneficiaries of the AI boom, we took a different approach. We were scouring the industrial landscape for companies quietly building the backbone of tomorrow’s digital economy.

Our search began with a simple observation: investor demand was developing across industrials tied to the AI infrastructure build-out.

We started our search in the San Francisco Bay Area, the traditional hub for IT industrial services.

However, we quickly expanded our search across the U.S. This took us to both sides of the coast and off the beaten path to locations like Oklahoma and Wisconsin.

To ensure we left no stone unturned, we ventured to the small city of Guelph in Canada before flying across the Atlantic to Sweden and Switzerland.

But when we turned our attention back to the U.S., in Houston, Texas, it was IES Holdings that really stood out amongst all others.

Plugged into Growth

IES is a founder-led (with over 50% insider ownership) diversified electrical and technology systems company serving critical infrastructure markets across North America. Its four business segments span both secular growth drivers and cyclical recovery opportunities:

Communications (27% of revenue; 14% EBIT margin)
Focused on data centers, distribution facilities and high-tech manufacturing, this segment benefits from multi-year demand visibility in data infrastructure and logistics.
Residential (48% of revenue; 8% EBIT margin)
Provides electrical, heating, ventilation and air conditioning (HVAC), plumbing, cable TV and solar services for the housing market.
Infrastructure Solutions (12% of revenue; 23% EBIT margin)
Manufactures custom generator enclosures (especially for data centers) and provides motor maintenance and repair services. Expansion of the manufacturing footprint and potential M&A will underpin growth in this division.
Commercial & Industrial (13% of revenue; 11% EBIT margin)
Offers electrical and HVAC design, construction and maintenance, competing selectively where regional scale gives them a competitive edge.

Powerful tailwinds

Like its larger peers, including Quanta and Comfort Systems, IES Holdings is benefiting from powerful tailwinds such as:

Tech Infrastructure: The AI, cloud and e-commerce build-out represents a US$500 billion capex market, expected to reach US$1 trillion over the next 4 to 5 years. This implies annual growth in the mid to high teens and underpins strong visibility and sustained growth for the Communications and Infrastructure Solutions segments.

Source: IES Holdings Inc. Investor Presentation. 2025. FMI; limited to private Data Center construction.

Housing Recovery: The U.S. residential market remains structurally undersupplied. IES is expanding into plumbing and HVAC cross-sell opportunities, adding further optionality. Residential appears near a trough, with signs of stabilisation emerging in key Sunbelt markets.

Source: IES Holdings Inc. Investor Presentation. 2025. U.S. Census Bureau, National Association of Home Builders (NAHM); Apollo US Housing Outlook.

We spent extensive time speaking with large contractors, installation peers, and equipment manufacturers across adjacent areas such as switchgear, transformers, cooling systems and power generation.

This on-the-ground perspective gave us confidence in IES’s competitive positioning and ability to capture market share.

Under the radar

We made our initial investment in March 2024 when IES had a share price of around US$120 and was trading on 15x earnings. That represented a 40 to 50% discount to its peer group.

The company also had a strong balance sheet with a net cash position, which would allow it to make acquisitions or repurchase shares.

And with zero analyst coverage, it was truly flying under the radar.

The appeal of IES was simple: it was a cheap and undiscovered exposure to high-growth structural themes.

Supercharged for Success

The stock has nearly tripled since our initial investment. However, A lot of this has been earnings driven, so we believe significant upside remains.

IES Holdings now trades on approximately 20x earnings, while larger covered peers are trading between 25x and 36x earnings. That implies 40 to 50% multiple upside if coverage and recognition catch up, which will stack nicely with double digit earnings growth.

Source: Ophir. Bloomberg.

IES ticks many of the boxes we look for in a company:

Structural growth
Valuation upside
Balance sheet flexibility

While the rest of the market crowds around the usual AI beneficiaries, we are happy owning one of the companies quietly wiring the future.

As always, thank you for entrusting your capital with us.

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

Footnotes-

[1] Technically they are the ones that actually pay the tariff but ultimately it can in effect be shared across foreign exporters and U.S consumers

[2] Morningstar data for Global Mid/Small Cap Equity funds available in Australia since October 2018 inception

Actual returns could differ significantly from any forecasts, estimates or projections provided.

25 Jul, 2025 Press - Four small caps this top fundie says are worth a look

8 Sep, 2025 Letter to Investors - August 2025

23 Jul, 2025

Ophir Funds - FY25 Distributions

Fund Update • 6 mins read

We’re pleased to confirm final distribution amounts for all Ophir Funds, along with payment timelines and next steps for investors.

Final Distribution Per Unit (DPU)

Payment Dates

Ophir Opportunities Fund – 23 July 2025
Ophir Global Opportunities Fund – 23 July 2025
Ophir High Conviction Fund (OPH) – 27 August 2025 (reflects the timing required to complete on-market purchasing of units to satisfy the DRP).

Distribution statements will be issued on the payment date and tax statements will be issued approximately one week later. Please note that during this payment and processing period the Automic Investor Portal may not accurately reflect your distribution payment or distribution reinvestment.

Please note: The 30 June 2025 NAV shown on Automic monthly holding statements reflects the ex-distribution unit price – the unit price after distributions have been paid. Cash distributions are not displayed on holding statements. Only new units issued under the Distribution Reinvestment Plan (DRP) will appear, and these will be shown on the July holding statements.

Understanding Fund Distributions

If you’ve recently received a distribution from your investment in an Ophir fund, or noticed your unit price fall on 1 July, you might be wondering what happened and what it means for your investment. Here’s a quick guide to help you understand how distributions work and why they’re a normal part of investing in managed funds like ours.

What Is a Fund Distribution?

A distribution is a payment made to investors from the income earned by a fund during the financial year. This can include interest, dividends, and realised capital gains from assets the fund has sold.

Even though Ophir’s funds are capital-growth focused (not income-focused), they may still pay distributions, because Australian tax rules require funds to pass on any net income to investors.

What Happens When a Distribution Is Paid?

When a distribution is paid, the fund’s unit price adjusts downward by the amount of the distribution. This is similar to how a company’s share price drops when it goes ex-dividend. Importantly, you are not losing money, the value is simply transferred from the unit price to either:

A cash payment into your account, or
Additional units in the fund (if you’re enrolled in the Distribution Reinvestment Plan, or DRP).

What Is the Distribution Reinvestment Plan (DRP)?

The DRP allows you to automatically reinvest your distribution to buy more units in the fund, instead of receiving the payment in cash. This helps compound your investment over time — with no transaction costs, (such as buy spreads) and requires no action from you once you’ve elected for “Full Participation”.

Example: Ophir Global Opportunities Fund – FY25

Let’s walk through a real example using the Ophir Global Opportunities Fund.

On 31 May 2025, the unit price was $2.1222
By 30 June 2025, the unit price had risen to $2.2499, an increase of approximately +6.0% for the month
On 30 June, the fund paid a distribution of $0.4163 per unit
On 30 June, the unit price adjusted to $1.8336, reflecting the distribution

How Is the Ex-Distribution Unit Price Calculated?

Let’s assume you held 100,000 units in the Fund at 31 May 2025:

On 30 June, you received a distribution of $0.4163 per unit, which totals $41,630. Here’s what happens next, depending on whether you receive cash or reinvest via the DRP:

The key takeaway: your total pre-tax investment value stays the same.

Whether you take the distribution in cash or reinvest, the reduction in unit price is offset by either the cash received or additional units issued. If you’re unsure how this distribution affects your tax position or DRP participation, we recommend speaking with your financial adviser or accountant.

Didn’t Participate in the DRP?

If you did not register for the Distribution Reinvestment Plan (DRP) in our Global Funds but would like to make an additional investment, you can do so via either of the following methods:

1. Automic Investor Portal

Navigate to your holding

Select “Details” then “$ Top Up” to submit an additional application request

2. Paper Form

Complete a paper form:

Ophir Global Opportunities Fund – Click here

Ophir Global High Conviction Fund – Click here

Submit the form to ophir@automicgroup.com.au by 5pm AEST on Monday 28 July 2025 (3 business days before month-end) to be included in this month’s processing cycle

If you have any questions, please contact us via email (ophir@ophiram.com) or phone (+61 02 8188 0397). Thank you again for your continued support.

Team Ophir

This has been prepared by Ophir Asset Management Pty Ltd (ABN 88 156 146 717, AFSL 420082) (“Ophir”) and contains information about one or more managed investment schemes managed by Ophir (the “Funds”) as at the date of this document. The Trust Company (RE Services) Limited ABN 45 003 278 831, the responsible entity of, and issuer of units in, the Ophir High Conviction Fund (ASX: OPH), the Ophir Global Opportunities Fund and the Ophir Global High Conviction Fund. Ophir is the trustee and issuer of the Ophir Opportunities Fund.

All Ophir Funds are deemed high risk within their respective Target Market Determination documentation. Ophir does not guarantee the performance of the Funds or return of capital. An investment may achieve a lower than expected return and investors risk losing some or all of their principal investment. Past performance is not a reliable indicator of future performance. Any opinions, forecasts, estimates or projections reflect our judgment at the date of this information and video was prepared, and are subject to change without notice. Rates of return cannot be guaranteed and any forecasts, estimates or projections as to future returns should not be relied on, as they are based on assumptions which may or may not ultimately be correct.

Actual returns could differ significantly from any forecasts, estimates or projections provided.

23 Jul, 2025 Press - Inside Ophir's stellar FY25 with Andrew Mitchell (and 5 stock he likes right now)

25 Jul, 2025 Press - Four small caps this top fundie says are worth a look

9 Jul, 2025

Stock in Focus - Vusion Group (VU: FP)

Stock in Focus • 5 mins read

Read the PDF

20/20 Vusion

When you’re at the supermarket and you see all those price tags that change every other day with deals, specials, or to reflect higher prices have you ever thought to yourself, ‘I’m glad I don’t have to change them.’ Well what if they changed themselves… This transformation is underway for global retail and behind those familiar pricing labels on store shelves there is a multi-billion-dollar company you’ve probably never heard of that is leading the charge.

VusionGroup, (VU-FP), is a French technology company specializing in Internet of Things (IoT) and data solutions for physical commerce. The company has established itself as a global market leader for electronic shelf labels (ESL) and cloud-based software solutions (VAS), supplying retailers with its innovative solutions to enhance store digitalisation.

VusionGroup Product Features

Source: VusionGroup.

We first came across Vusion when spending a week on the ground in Paris to visit a long list of SMID-cap French companies around three years ago. What we discovered was one of the most compelling secular growth stories in global retail technology.

Shelf Control

After closely following the company for nearly a year, we took our position in June 2023. The catalyst? A short report that halved the stock price. At the heart of the bear case was the validity of its contract with Walmart – a major source of growth for Vusion in the U.S – and a large Chinese shareholder potentially selling down.

While definitely not our typical entry catalyst we were fortunately prepared and had done the following…

Spent over a year engaging with the company and built trust in management’s delivery during that time.
Spoke to multiple large U.S. and EU grocery chains about ESL and were already comfortable with the unit-level economics being generated.
Ran channel checks on the company’s Chinese shareholder
Conducted detailed discussions with management to address the other accounting concerns in the report

This allowed us to quickly conclude the short report was weak and the market had overreacted. We bought in on day two, once the dust had settled, at a time when the stock was trading at around €80.

A clear front-runner

Globally, there are four major providers of ESL’s: Vusion and Pricer in Europe, and Hanshow and Solum in Asia. We’ve conducted translated investor calls with Solum, met with Pricer management on multiple occasions, and held industry expert calls on Hanshow.

Through this work, one thing has become clear: Vusion has a material lead in the U.S. market.

The U.S. currently represents only ~5% of the global ESL market compared to ~40–50% for Europe. But with Walmart as a marquee customer and ESL adoption still in its infancy stateside, the U.S. is on track to overtake Europe by 2029 as the largest market globally.

Source: VusionGroup, Ophir.

This market share head start, combined with Vusion’s differentiated software offering, gives the company a substantial runway for growth.

Growth remains in its infancy

Adoption of ESLs in the U.S. remains in the low single digits, with Walmart acting as a first-mover. But the macro backdrop is increasingly favourable: rising labour costs, supply chain volatility, and stockkeeping unit (SKU) proliferation are all improving the payback profile for ESL rollouts.

Importantly, the use case is expanding. ESLs are moving beyond grocery into pharmacy, hardware and other specialty retail, effectively doubling Vusion’s total addressable market.

Source: VusionGroup, Ophir.

We model 25%+ revenue CAGR through 2027, supplemented by high-margin value-added services (VAS) products that Vusion bundles with its hardware. These software solutions, which include dynamic pricing, inventory automation, and theft prevention, are creating recurring revenue streams and best-in-class EBITDA margins that we believe increase Vusion’s competitive moat and customer stickiness.

Source: VusionGroup, Ophir.

Beyond the fundamentals, the technology itself is genuinely exciting. VAS features now enable:

Optimised picking for online orders
Time-of-day dynamic pricing
Real-time inventory auto-replenishment
Theft detection and loss prevention

These aren’t just bells and whistles, they’re solutions to real pain points for retailers, helping drive adoption and pricing power. And importantly, they deliver software-like margins on top of hardware deployments.

ESL penetration in the U.S. remains well below Europe despite a significantly larger store and SKU base, a recipe for catch-up growth.

U.S. stores: Significantly more locations per chain; often with broader inventory complexity.
Pharmacy and hardware: These verticals are still largely untouched and represent major future growth. Just picture an ESL replacement program on your next trip to Chemist Warehouse…

With ESLs moving from “nice to have” to operational necessity, we see a multi-year adoption curve ahead.

Why We Still Hold – The Price is Right!

Despite recent strength in the share price, valuation remains attractive. Vusion trades on ~12x forward EBITDA with 35%+ EBITDA CAGR expected over the next few years. With increasing operating leverage from software and international expansion, we believe this multiple does not reflect the quality or visibility of future earnings.

Source: Bloomberg, Ophir.

We feel like we’ve been told to “Come on Down” and we’re on to a winner with structural tailwinds, an expanding TAM, and operational leverage still ahead. You don’t need 20/20 vision to see further upside from here.

9 Jul, 2025 Letter to Investors - June 2025

23 Jul, 2025 Press - Inside Ophir's stellar FY25 with Andrew Mitchell (and 5 stock he likes right now)

9 Jul, 2025

Letter to Investors - June 2025

Letter to Investors • 12 mins read

Read the PDF

A big FY25 but small cap rate cut benefit still ahead

Financial Year 2025 generated some great returns in the Ophir Funds and in this Letter to Investors we:

Reveal what drove our Funds to achieve 20-40% returns – the punchline….it was stock picking!
Cover what our returns look like in up and down markets
Show how breadth of contributors is a good sign of performance repeatability
Highlight how rate cuts ahead might help small caps outperform

June 2025 Ophir Fund Performance

Before we jump into the Letter, we’ve provided a detailed monthly update for each of the Ophir Funds below.

The Ophir Opportunities Fund returned +0.3% net of fees in June, underperforming its benchmark which returned +0.8%, and has delivered investors +23.2% p.a. post fees since inception (August 2012).

The Ophir High Conviction Fund (ASX:OPH) investment portfolio returned -0.3% net of fees in June, underperforming its benchmark which returned +0.8%, and has delivered investors +13.9% p.a. post fees since inception (August 2015). ASX:OPH returned -0.9% for the month.

The Ophir Global Opportunities Fund (Class A) returned +6.0% net of fees in June, outperforming its benchmark which returned +2.3%, and has delivered investors +18.1% p.a. post fees since inception (October 2018).

The Ophir Global High Conviction Fund (Class A) returned +5.0% net of fees in June, outperforming its benchmark which returned +2.3%, and has delivered investors +13.9% p.a. post fees since inception (September 2020).

A Good Year

Despite four years on the trot now of global small cap underperformance versus large caps, it was a good FY25 (12 months to June 2025) for global and Australian small cap markets, producing total returns in the low to high teens.

But it was an even better year for the Ophir Funds, each of which was up between about 20-40% – see table below.

Longer term we assume the market, and our benchmarks, return about 10% per annum, which is what they have approximately done over the very long term. So, by this standard it was an above average 12 months for the small cap market.

We also target 5% outperformance, or 15% total returns, over the long term for all our funds. All four of our core funds below bested this mark in FY25, led by the Ophir Global Opportunities Fund up 41.8% after fees.

Of course, this is not a return investors should extrapolate out into the future as we are acutely aware virtually no one can achieve those types of returns on average over the long term, with the great Warren Buffett achieving more like 20% pa returns in the very long term.

We’d always caution investors that we seek to achieve 15% pa but that comes with risk. And the only thing we can guarantee is that the return in any one given year will not be exactly 15%!

Ophir Funds – Performance to 30 June 2025

While headline results of 1 year returns are great, its long-term returns that matter most for investors. Here our Australian and Global Opportunities Fund’s at 23.2% net p.a. and 18.1% net p.a. since their respective inceptions in 2012 and 2018 are the clear No.1 performers in their asset classes available in Australia (FE Fundinfo data).

The Ophir Opportunities Fund is hard closed, though the Global Opportunities Fund is still open (learn more here).

So if we can’t extrapolate 1 year returns, what can we learn from them? The answer is a lot!

Stock picking rules the day

Below we “pop the hood” on the Global Opportunities Fund’s 41.8% after fee return in FY25. The Global small and mid cap market, as shown by its benchmark, returned 18.7% over the same period so we outperformed by 23.1%. The below chart shows multi-factor performance attribution from Bloomberg which is really just a fancy way of saying, you outperformed the market by 23.1%, what factors caused it?

We haven’t shown the long list of 35 odd factors that Bloomberg tracks, that’d be a really ugly chart, so many of them are just clumped under “Other”. It’s clear the outperformance wasn’t due to the “Size” of companies we invested in as Mid Caps outperformed Small Caps but we are more invested in Small Caps. It wasn’t due to us allocating more to certain countries over others compared to the benchmark – we broadly mirrored the benchmarks/markets allocations to different countries based on their size, with the U.S. being about 60%.

Anyone who tells you they can pick which country is likely to have a better performing share market over the short term is in our view likely lying to themselves, or worse, to you. Good luck to them. And it wasn’t due to taking on more market risk as Beta only contributed 0.4%, or virtually nothing, to the 23.1% outperformance.

Source: Bloomberg. Data as of 30 June 2025. Benchmark MSCI World SMID Index.

In fact, more than 100% of the outperformance was due to Selection Effect which, like we’ve covered previously, means it can’t be explained by standard investment characteristics or styles, but rather from stock picking by the team. That’s good and important because outperformance from stock picking, if you have a genuine edge versus the market, is more likely to be sustainable than outperformance due to some specific factor or style of company like “Size”, or “Growth” or “Industry”.

Those factors and styles might work for a while, but often mean revert (subsequently underperform) and there is not a lot of great evidence that one of them always outperforms in all markets or over the short and long term.

Protecting the downside and outperforming in up markets

Another attribute that investors often crave is to not fall as much as the share market when it inevitably does. The share market is volatile enough, if you can protect during the dips then that’s a trait virtually all investors would put their hand up for.

After a tough 2022 for our style of investing when smaller faster growing businesses saw their valuations get hit when interest rates rose rapidly, we are pleased to show that we’ve fallen less than the global small and mid cap market when there has been pull backs. Over the last year when our benchmark has been down, we have only been down on average 76% of that amount, meaning we fell only about three quarters the amount of the market, protecting value for investors (green bar in chart below). For example, if the market fell -4% in a month we tended to only fall about -3%.

Source: Ophir. Bloomberg. Data as of 30 June 2025.

On the flip side when the market has been up, we have been up 183% of the market’s return. So here if the market was up +4% in a month, we were up 7.3% on average.

As the chart shows this is not just a trait of the last year, but the last three years. That is we’ve both fallen less in down markets and outperformed more in up markets, but the size of the outperformance is more when the market is up.

This outperformance in both up and down markets is something we also notice in our Australian small and mid cap funds that have been running for even longer.

What do we put it down to?

At the end of the day we are looking for companies that can structurally grow and beat the market’s expectations on both revenues and profits. Sure, there might be shorter term periods where other styles of investing might be more in vogue (think Dot.com bubble where nobody cared about fundamentals if you had “.com” in your name!) but if you’re growing cash flows for owners more than the market expects, that’s going to be pretty attractive no matter if the market is in the red or black.

You don’t want to be a one trick pony or a lucky duck

One of our favourite ways to tell if a fund manager is more likely to be skilful or just lucky is to ask them this “How many different (uncorrelated) bets led to your outperformance?” The more there are, the more likely there is to be a repeatable skill in their investment process.

Why?

It’s pretty simple. Even a novice can beat a World Series of Poker Champion on one hand. You can get lucky once. Play enough times though and the novice will lose all their dough.

If you have only one or two stocks doing all the heavy lifting contributing to your outperformance then, though its still not certain, but you’re more likely to have just gotten lucky.

Put another way, the greater the spread of stocks contributing to your outperformance, the more comfortable you should be that outperformance is likely to continue in the future. And before you ask, yes they still need to be uncorrelated. Owning 40 gold stocks out of a supposed diversified 50-stock portfolio when the gold price does well, doesn’t mean you got 40 separate calls right, you got one!

In FY25, we had 19 stocks give over 1% contribution to the 41.8% return of the Global Opportunities Fund, with the biggest 3 contributors providing less than 10% of the fund’s return.

Source: Ophir. Bloomberg. Data as of 30 June 2025.

9 of the 10 industry sectors we invested in provided a positive return in FY25, with our industry allocation compared to our benchmark contributing virtually nothing to our outperformance (no big gold bet here!).

The key point being there was a wide spread of contributors to the return of our Global Opportunities Fund in FY25. While that doesn’t guarantee results in the future, we think it makes it more likely our investment process can sustainably produce outperformance in the long term, as it has in the past.

Cuts remain key

To close we thought we’d leave you with a chart that caught our eye this month. We don’t think we necessarily need small caps to be outperforming large caps to generate attractive returns for investors, and ourselves. FY25 is an example of that. But it sure would be nice if they did after 4 years of small cap market underperformance.

As we have argued for a while now (like in our May Letter to Investors), lower interest rates should certainly help.

Why? For one it reduces interest costs on smaller companies more (as they have more floating rate debt on average than large caps) and secondly it also spurs more risk taking by investors to venture further down the market cap spectrum.

The below chart shows Small Cap versus Large Cap performance in Australia (indexed to 100) in orange since 2019. A falling line means Small Caps are underperforming Large as has happened since late 2021. That coincided with interest rates rising in Australia (RBA Cash Rate inverted in grey). But now Small Caps have just more recently stopped their obvious underperformance as the RBA has begun their rate cutting cycle. A further 0.75%-1% of RBA rate cuts is priced by the market to occur over the next year.

Sometimes the investment world can get too technical in its analysis. Maybe it is just as simple this, as higher rates have hurt Small Caps relative to Large over the last few years. Perhaps more rate cuts are the antidote?

(The chart below looks very similar for U.S. Small versus Large Caps).

Source: Ophir. Bloomberg. Data as at 30 June 2025.

After strong returns in FY25 investors might be asking “is there more juice left in the stocks you hold in the funds, or has it all been squeezed out?” It’s the right question to ask.

The reality is the funds, and more so the global funds, which have a truly enormous investment pond to fish from, are fresh with several high conviction new ideas with big upside, replacing companies that did well and we sold in FY25, after hitting our valuation targets. This keeps us very excited for what lies ahead in FY26.

As always, thank you for entrusting your capital with us.

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

All Ophir Funds are deemed high risk within their respective Target Market Determination documentation. Ophir does not guarantee the performance of the Funds or return of capital. An investment may achieve a lower than expected return and investors risk losing some or all of their principal investment. Past performance is not a reliable indicator of future performance. Any opinions, forecasts, estimates or projections reflect our judgment at the date of this information and video was prepared, and are subject to change without notice. Rates of return cannot be guaranteed and any forecasts, estimates or projections as to future returns should not be relied on, as they are based on assumptions which may or may not ultimately be correct.

Actual returns could differ significantly from any forecasts, estimates or projections provided.

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