Author: Faye Layland

Optimism Dies Hard

PDF

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

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.

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

PDF

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.

16 Jun, 2025 Fund Update - Distribution Estimates FY25

9 Jul, 2025 Stock in Focus - Vusion Group (VU: FP)

16 Jun, 2025

Fund Update - Distribution Estimates FY25

Fund Update • 4 mins read

Reinvest for Long-term Growth

Historically, for our longer running funds, investors have been substantially better off by reinvesting distributions back into the Fund than investing them in cash or into an investment achieving the broad asset class return.

We demonstrate this below with a hypothetical $100,000 investment into the Ophir Opportunities Fund (OOF) at inception in August 2012.

Source: Ophir, Bloomberg. “Bbill”=Bloomberg AusBond Bank Bill Index – a proxy for Cash return.

Distribution reinvestment into the Fund has provided:

More than twice the wealth of distribution reinvestment into Cash.
76% more wealth than distribution reinvestment into an investment achieving the broad asset class return.

Ophir Funds – FY25 Estimated Distribution Per Unit

As we approach the end of the 2025 financial year, we’re pleased to share preliminary distribution estimates for the Ophir Funds, based on data as at 30 April 2025.

Final distribution figures will be confirmed in July once official calculations are completed. Until then you can view the current estimates below.

Please note these estimates are indicative only and subject to change.

Put your distributions to work

All Ophir Funds offer a Distribution Reinvestment Plan (DRP) to help investors capture the full benefits of compounding and maximise long-term wealth creation.

The DRP offers a range of benefits:

Automatic reinvestment – your distributions are used to purchase additional units in the Fund with no paperwork or payment.
Cost efficiency – DRP units are issued without incurring buy/sell spreads.
Remain fully invested – no time out of the market means your capital continues working for you.
Maintain investment discipline – supports a consistent, long-term approach to investing.

We encourage you to consider electing to participate in the DRP, if you have not done so already, to make the most of your investment in the Ophir Funds. You can update your election via the Automic Investor Portal or this paper form, your investment platform, or by contacting your adviser.

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

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.

10 Jun, 2025 Letter to Investors - May 2025

9 Jul, 2025 Letter to Investors - June 2025

10 Jun, 2025

Letter to Investors - May 2025

Letter to Investors • 13 mins read

Download PDF

May was a record-setting month for Ophir. In this Letter to Investors, we:

Reveal the exact above-market returns our Funds generated for investors this month, making it our best ever
Examine 4 crucial lessons from this month of big outperformance
Highlight two Australian stocks that delivered outsized gains for the Funds after reporting very strong results
And for the Stock in Focus this month, we look at former market darling, Bravura Solutions. After several years in the wilderness, we explain why it is now one of the most exciting holdings in our Aussie Funds

May 2025 Ophir Fund Performance

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

The Ophir Opportunities Fund returned +11.9% net of fees in May, outperforming its benchmark which returned +5.8%, and has delivered investors +23.3% p.a. post fees since inception (August 2012).

The Ophir High Conviction Fund (ASX:OPH) investment portfolio returned +11.4% net of fees in May, outperforming its benchmark which returned +5.9%, and has delivered investors +14.1% p.a. post fees since inception (August 2015). ASX:OPH returned +11.3% for the month.

The Ophir Global Opportunities Fund (Class A) returned +8.7% net of fees in May, outperforming its benchmark which returned +5.0%, and has delivered investors +17.3% p.a. post fees since inception (October 2018).

The Ophir Global High Conviction Fund (Class A) returned +7.8% net of fees in May, outperforming its benchmark which returned +5.0%, and has delivered investors +13.0% p.a. post fees since inception (September 2020).

Our best month ever

At Ophir, amongst the hundreds of emails we receive daily, there is only one that is guaranteed to be read by every single member of the Ophir team.

It is our daily performance email of the Ophir Funds versus their benchmarks, which gets sent around at about 4.15pm after market close.

Now you might think a day is way too short a timeframe to be judging performance, and in many ways it is. But as much as anything we are trying to see two things:

How much any stock news helped or hurt fund performance, and
Whether there were any market factors (like quality, growth, size, momentum, sectors or geographies) that had a big influence.

But if you think daily performance gets our attention, monthly performance gets exponentially more focus by us – particularly the months where we have many companies report.

For our Aussie Funds that’s mostly February and August, and for our Global Funds it’s those same months, plus May and November.

So, May is a really important month for us, and we are pleased to report May was our best month EVER for Ophir investors!

All our Funds were up between about 8-12%, net of fees, in May; and all outperformed their benchmarks which were each up 5-6%.

The benchmarks and share markets, in general, had a very good month in May with the TACO (Trump Always Chickens Out) trade in full force. Markets bet that we’ve seen the worst of tariff news from the U.S. and that an Armageddon scenario is seemingly now off the table.

Setting records

It was the best month ever because we generated about AUD$115 million of above-market returns (outperformance) for our investors.

From when we started in 2012, that result represents a record.

Based on absolute returns, each of our four Funds in May ranked near their best-ever month, as shown in the chart below.

One of Ophir’s Top Performing Months – Gross Returns

Source: Ophir. Data as of 31 May 2025.

Most of those small number of months with better returns were ones driven by the market ripping higher and not necessarily because of strong outperformance by us.

Last month we had both strong market returns AND strong outperformance.

Our flagship Fund, ‘the Ophir Opportunities Fund’, led the way. While the market was up +5.8% in May, the Opportunities Fund surged +11.9% after fees. That was the third-highest-returning month for investment performance from the 154-month history of the Fund!

So, which months beat May 2025?

As you can see from the chart below, it was April and May 2020 when the market recovered from the Covid Collapse in March 2020 after central banks slashed interest rates.

Source: Ophir.

4 Lessons from May

Our four key observations from the May result across the Ophir Funds are:

1. Position sizing matters

Our biggest positions, like Life360, were our biggest winners in May.

As George Soros said: “It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.”

While May typically isn’t a big news or reporting season month for Australian companies, we did have a smattering of companies report quarterly results, and some of our biggest positions delivered good news for our Australian Funds, two in particular:

Life360 – the family safety app – reported a great Q1 result on the back of surging user subscription numbers.
Also, Generation Development Group, led by former Olympic champion Grant Hackett, announced a tie-up with Blackrock, one of the world’s largest financial services companies, to provide retirement solutions to the Australian market. It also received a boost for its tax-effective investment bonds business, which will become more attractive with the government’s $3m super tax still on the agenda, a policy that lowers the attractiveness of super for the uber wealthy.

Below, we show the average return in each quartile of the Ophir Opportunities Fund by weight for May. So, for example quartile 1 (Q1), which is the top 25% of the Fund by average weight over May (in this case the largest 10 stocks by weight out of the 40 in the Fund) – or in other words our highest conviction stocks – provided an average return of +21.5%.

Whereas our fourth quartile (Q4) stocks – the bottom quarter of the fund by weight – only provided a +0.7% return on average.

Source: Ophir. Bloomberg.

Bottom line: the stocks with the biggest weights in the Fund generally had the best returns; and stocks that lost ground on the month or just treaded water were generally our lowest-weight positions.

As a fund manager, this is exactly what you want.

Our highest-weight positions are generally the stocks we have done the most work on, that we have the biggest edge in, and that the market is most underappreciating.

It’s best to knock it out of the park on a big bet and keep your losers (of which there will always be some) to those stocks where you’ve got less money at risk.

For the Ophir Global Funds, May was a key month because the majority of our stocks reported their March quarter Q1 results.

Again, here our biggest weights were often our best.

For example, iRhythm, a stock we wrote about last month here, was one of our top-3 holdings going into May. The company posted a cracking result that saw its share price up just over +30% for the month.

2. Compounding is a marvellous thing

A foundation investor who invested $100,000 into our Ophir Opportunities Fund when we started in 2012 saw their investment increase by around $170,000 in May alone.

That’s an almost doubling of their initial investment in a single month!

This clearly illustrates that returns on your returns (ie compounding) truly is the 8^th wonder of the world, as Einstein supposedly said.

You just need to start early, be consistent, and let time and hopefully high returns work their magic.

Over a lifetime, you can think of investing as a marathon, with compounding essentially acting like a slowly building tailwind at your back as the race rolls on.

3. The best months usually accompany the worst months as the market recovers from the bottom.

If you miss the best months trying to time the market, it is very costly.

In investment speak, volatility “clusters”. That is, the best and the worst months often happen side by side.

As we showed in a chart above, we had two of our best months in April and May 2020, right after two of the worst in February and March 2020 when Covid hit.

If you get scared out on the way down, you often don’t get back into the market in time to benefit from the rebound, and you destroy the ability of compounding to work its magic.

The siren song of trying to time the ups and downs of markets is a strong one. In theory billions could be made from successfully doing it.

But as Yogi Berra said, “In theory there is no difference between theory and practice – in practice there is”.

Just because market timing COULD be done doesn’t mean it CAN be done.

One of the best investors of all time Peter Lynch said:

“I can’t recall ever once having seen the name of a market timer on the Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it”.

And we’d add that, if anyone could time the market, they are not going to sell/tell you their way of doing it. They’d keep that almighty secret to themselves, lest the benefit get competed away if others knew about it.

4. Never get ahead of yourself

We have no doubt that tough months will be ahead at Ophir. It’s part and parcel of investing. And there are always new lessons to learn.

Good months of performance can easily reverse, particularly if it’s not driven by sustainable increases in the earnings of the companies in which you are invested (pleasingly, though, better earnings drove much of our May result).

We always have new investors who haven’t benefited from past results and have high expectations. This, along with our love of investing, is what keeps us motivated to keep generating attractive returns.

For the remainder of this month’s Letter to Investors we wanted to take you through one of our key holdings in our Aussie Funds that we are particularly excited about: Bravura Solutions.

A Brave New Solution

Bravura Solutions (ASX:BVS) is an enterprise software business that provides the funds and wealth management industries with mission-critical software. Bravura counts as clients some of the largest global investment management firms and Australian superannuation funds.

Back from the brink

After many years of poor capital allocation and mismanagement, Bravura had a near-death experience in 2023.

With revenue going backwards and costs going up, it seemed the writing was on the wall.

Bravura wasn’t winning any new business, and their existing clients were delaying investment decisions over fears Bravura wasn’t a going concern.

At the same time, cost inflation was out of control and the business was burning cash on unscalable Research & Development.

Following an emergency capital raise in March 2023, things needed to change.

Up stepped Pinetree Capital.

Pinetree are an investment firm founded by the Chairman and founder of $100bn+ global software behemoth, Constellation Software, one of the most respected operators in global software.

Action was swift and decisive …

Source: Bravura FY24 presentation

The Board and management team underwent an immediate overhaul.

New management embarked on an aggressive cost-out program where:

A large number of staff that hadn’t been doing much were tapped on the shoulder
Excessive R&D spend was reined in
Lavish London offices full of empty desks were replaced with more appropriate surroundings; and
Specific roles and operations were shifted to the much cheaper jurisdictions of India and Poland.

… and we believe there are more efficiencies to be achieved.

Source: Bravura 1H25 presentation

Revenue starting to grow again

When businesses take such aggressive cost-cutting measures, it’s not uncommon to see revenue growth suffer.

However, with the business now a going concern Bravura’s clients have regained enough confidence to reallocate spend to in-house software development, which means revenue for Bravura.

Despite the reduction in staff numbers, customer feedback has also improved.

As you can see in the chart below, the company has upgraded guidance twice during FY25, with an expected increase in revenue the primary contributor to the guidance upgrades (driven by both the business and FX movements).

Source: Bravura FY25 presentation, Ophir

With Bravura now able to focus on building a pipeline, the next phase of the revenue growth story will be new customer wins. The wins will likely come across both smaller, modular-type sales (shorter sales cycle) and larger-ticket enterprise sales (longer sales cycle).

Should Bravura’s existing customers continue to increase their activity levels, and some new customers start to land, it’s possible for revenue growth to move from the current mid-single digits to low-to-mid double digits in FY27.

Rule of 40?

While Bravura isn’t a pure SaaS (software as a service) business, we see it on a trajectory to becoming a Rule of 40 stock – a software business where profit margin and revenue growth combined equal or exceed 40%.

If Bravura can continue to manage costs well, and they can hit double-digit revenue growth, 25% cash EBITDA margins would be within reach.

And Rule of 40 software companies don’t trade on 3x sales – they trade on 6-7x.

So we think there is big upside for Bravura.

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.

10 Jun, 2025 Podcast - Andrew Mitchell on the Rules of Investing “The market always wins”

16 Jun, 2025 Fund Update - Distribution Estimates FY25

10 Jun, 2025

Podcast - Andrew Mitchell on the Rules of Investing “The market always wins”

Podcasts • 6 mins read

Andrew Mitchell on the Rules of Investing Podcast – “The market always wins”

Last month Ophir Co-Founder Andrew Mitchell was invited on the Rules of Investing podcast by Livewire Markets where he was interviewed by Livewire’s Founder James Marley. (Duration 51 mins)

Click here to access the podcast: https://www.livewiremarkets.com/wires/andrew-mitchell-the-market-always-wins

The key highlights are:

Macro environment

Tariff risks have been priced out by the market, but should they? The recent market rebound has occurred virtually solely through multiple expansion and not higher market earnings, despite higher bond yields. The TACO trade (Trump Always Chicken’s Out) is alive and well at present with many investors believing we have seen the worst of the tariff news.
Pullbacks like we saw in early April after Liberation Day are an opportunity as the market always wins in the long term. The market is also betting on Trump not going down the “Armageddon” path which is helping calm investors’ nerves…
We think growth orientated companies become the rare diamond ahead. There is likely lower growth in the U.S. in the second half of 2025 and therefore companies that can grow, like the ones Ophir deliberately targets, are likely to become rarer and command higher valuations by investors. Cyclical businesses might not benefit from the rising tide lifting all boats.
During company blackout in early April we were talking to private company contacts. They were saying it was a scary time. We were preparing for pulling of guidance/downgrades of guidance at U.S. company Q1 results, given in late April/May. We were cautious/pessimistic. Trump backed down on tariffs though and it has taken out some of the “left tail” risk of markets. During this market surge since mid-April we have been trimming some of our most momentum driven company names as these will be the ones investors will go after if the market pulls back again.

Global versus Australian small cap investing

U.S. small caps can be a more volatile market in comparison. In 2022 and 2023 when rates ripped higher, for some U.S. companies’ valuations there was not anyone to catch you during the sell off. Long only funds typically provide a share price floor earlier in Australia helping to limit the downside. This is also the opportunity though in U.S. small caps as valuations can get cheaper as good quality growth companies are not as scarce in the U.S. like they are in Australia. Often Australian companies can get priced to perfection if going overseas through expansion and the market assumes they will win. There are lots of short reports in U.S. where it is par for the course. This is rarer in Australia though. Also, there is often a lot higher short interest in U.S. small caps compared to Australia. This leads to bigger short squeezes, creating more volatility.
History says U.S. market concentration in mega cap tech companies won’t last. Amazon Founder Jeff Bezos has this great quote: “your margin is my opportunity”. Big monopolistic companies get attacked by smaller startups over time. There is also regulatory risk: Will Google get broken up? On some measures the U.S. share market is the most concentrated in 100 years and it’s causing U.S. small cap valuations to be the cheapest to large caps in a generation. We think this will be a big tailwind for U.S. small cap relative returns over the next 5-10 years.

Great management teams in Australia

The Lieutenants (and Swimmers) become the Generals. We backed Bill Beament at Northern Star, the gold miner, many years ago and he transformed Northern Star into a behemoth. In commodity companies we think management teams are even more important than in industrials. We have gone on to back Bill at his new venture Develop Global (ASX: DVP) and also one of his star Lieutenants at Northern Star, Luke Creagh who has gone on to lead Ora Banda (ASX:OBM). Another great business leader we like who is a household name is Grant Hackett. After starting at the Olympics in swimming, he now leads Generation Development Group (ASX:GDG). It, through its businesses Lonsec and Evidentia, is the leading player in Australia in the managed accounts space, developing investment portfolios for financial advisors and high net worth investors. Grant is a great example of a highly driven leader who we like to back.
Being profitable is not the be-all and end-all. We like management teams who, if they are acquiring customers really cheaply, to keep reinvesting for growth. Like with Afterpay, this means you might not be profitable overall though. We’d rather this though than the company go ex-growth just to be profitable. Good management teams know this. Afterpay could have been profitable if it didn’t seek to grow overseas and spend marketing and capex dollars there and just focus on Australia, but it wouldn’t have been anywhere near as big.
Always do your work on the second level of management teams. Great CEOs attract great people. If the second layer of management looks mediocre then this could be a warning sign.

Two stocks we like in Australia

The next “rule of 40” stock in Australia? Aussie financial services software business Bravura (ASX:BVS) recently had its CEO resign, which is not normally a good sign. However, the business is going through a transformation with Pinetree Capital, the Canadian family office behind the highly regarded AUD$100bn+ Constellation Software, building a stake in Bravura and having board influence. Bravura has been shedding excess staff and outsourcing to Poland and India to cut costs and improve margins. Service is improving for its big Australian super fund and UK wealth manager customers and it’s building a pipeline of new business in both regions. We think it can push revenue growth from mid to high single digits into the 10-15% range as it continues to improve its margins into the 20-25% range. This would see it approach a “rule of 40” (revenue growth + profit margin) company, which should see it re-rate from its circa 3-3.5x Enterprise Value/Sales valuation to something closer to 6-7x.
One company for 5 years. Andrew was asked which company he would back if the ASX shut down for the next 5 years. That ASX listed company is Life360, the family tracking app. It has 80+ million users worldwide with a very low cost of customer acquisition. It has turned on advertising as a revenue stream last year and is flexing its platform with moves into the Pet business and Aged Care to come. The key risk is Apple’s “Find My” product. But like with Spotify being better than Apple Music, we believe Life360 can see off this challenge. It has the added benefit of being across both Android and iOS platforms.

23 May, 2025 Letter to Investors - April 2025

10 Jun, 2025 Letter to Investors - May 2025

23 May, 2025

Letter to Investors - April 2025

Letter to Investors • 15 mins read

Download PDF

What small caps need to outperform – and does it even matter for us?

After a dramatic period for markets, in this month’s Letter to Investors, we examine:

Why markets bounced back strongly from April’s shock sell-off
The headwinds that have led to small caps underperforming large caps
The key factors that will trigger a much-anticipated small-cap revival
How Ophir’s Funds managed to outperform both small and large-cap indexes in 2024, including the S&P 500, despite smalls struggling
Why the sheer number of opportunities in small-cap stocks means investors should stick with quality active small-cap managers during periods of small-cap index underperformance
A historical perspective on why U.S. small caps have rarely been this cheap relative to large caps

April 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 +1.0% net of fees in April, underperforming its benchmark which returned +1.8%, and has delivered investors +22.4% p.a. post fees since inception (August 2012).

The Ophir High Conviction Fund (ASX:OPH) investment portfolio returned +1.5% net of fees in April, underperforming its benchmark which returned +2.6%, and has delivered investors +13.0% p.a. post fees since inception (August 2015). ASX:OPH returned -0.7% for the month.

The Ophir Global Opportunities Fund (Class A) returned -0.9% net of fees in April, outperforming its benchmark which returned -1.7%, and has delivered investors +16.0% p.a. post fees since inception (October 2018).

The Ophir Global High Conviction Fund (Class A) returned -0.6% net of fees in April, outperforming its benchmark which returned -1.7%, and has delivered investors +11.4% p.a. post fees since inception (September 2020).