An all-time month for Ophir’s flagship Funds in April

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In this Letter to Investors, we look at:

• The big reason the U.S. market keeps charging higher despite the Iran war remaining unresolved.
• The pleasing explanation for why our Global Opportunities Fund had its best month ever.
• Our flagship Global and Aussie small-cap Funds topping the leaderboards in April.
• The potential for a ‘soft close’ of our Global Opportunities Fund to help optimise our ability to generate returns.
• The hot industry sector in the AI thematic that has killed it over the last year, including a stock up a massive 2,939%.
• Why we don’t need big skews to risky ‘hot themes’ to drive our strong performance.

The outbreak of the Iran war triggered an ‘every equity market down month’ in March. But then in April we saw an almost universal relief rally in markets as investors got more comfortable that there was likely to be a de-escalation in military hostilities.

During the month, the S&P 500 ripped +10.5% to new all-time highs. Domestically, however, the RBA’s continued hiking led to a relatively muted +2.2% gain for the ASX 200.

A hawkish RBA also saw the Australian dollar jump +4.4% versus the U.S. dollar, which trimmed offshore gains for unhedged Aussie investors. Global equities (MSCI World Index) were up +9.6% in U.S. dollar terms in April. But in Australian dollar terms gains were almost cut in half to +5.1%.[1]

It’s earnings, stupid

Understandably, investors have been scratching their heads and wondering why the US share market is back at all-time highs when the Iran war and the global oil supply situation remain unresolved.

The answer likely lies in the chart below.

It’s earnings!

Normally in the first few months of the year (as shown by the grey line), corporate earnings expectations in the U.S. get downgraded.

But this year, earnings expectations have been going bananas.

They’ve been juiced up by stellar growth from AI-related businesses.

But expectations for earnings growth have also been strong outside the Magnificent 7, including in small-cap land where we fish.

How Ophir’s stock picking drove April outperformance

Our Ophir Funds in April collectively had one of their best months ever.

In fact, measured by the collective increase in our Funds Under Management due to investment returns, we added more to our investors’ back pockets in April than any month before!

Of course, in our view, investing in shares is a long-term endeavour and that is what’s most important, but it’s nonetheless pleasing to have had a good month.

Leading the way was our Global Opportunities Fund (global small caps), which in April was up +12.3%.

As you can see in the chart below, over the 91 months since it started in October 2018, this was its best month ever.

Importantly, most of this return was outperformance.

While the Fund was up 12.3 per cent in April, its benchmark (MSCI World SMID Cap Index NR AUD) rose +3.2% — an outperformance of 9.1%.

Just as important, the vast majority of that 9.1% outperformance came, not from a big factor or thematic tailwind, but from stock picking (a point we’ll elaborate on later).

The April outperformance was essentially the stock prices of our companies catching up with the Feb/March reporting season.

While they handed down strong earnings back then, they weren’t fully rewarded at the time because the Iran war had stolen the market’s attention.

Ophir Flagship Funds top leaderboards

Not only was April the best month for our Global Opportunities Fund in its history. But it was also the best performance in April of any global small/mid-cap fund available in Australia (see chart below).

For prospective investors in the Fund, a natural question might be: “Have I missed out? Have all the returns already been squeezed from the current portfolio?”

Well, we’d note that the competition for stocks to get into our Global Opportunities Fund remains amongst the highest it’s ever been.

Many great ideas have been relegated to ‘bench’ stocks, so we can keep the Fund full of just our very best ideas.  Given this, we have been personally allocating significant amounts to the Fund at the start of May.

Market leading performance

But it wasn’t just our flagship Global Fund that had a good April.

Our original Aussie small-cap fund, the Ophir Opportunities Fund, also outperformed all other Aussie small/mid-cap funds during April, rising +8.4%.

It wasn’t the Ophir Opportunities Fund’s best month ever in absolute terms. But after beating its benchmark (the ASX Small Ordinaries Index +3.3%) by 5.1% in April, it was a top-10 outperformance month. Not bad for a fund that’s been going 165 months (almost 14 years).

Since its 2012 inception, that original Ophir Opportunities Fund has now returned +22.8% per annum after all fees.

That puts it a long way ahead of the other Australian small/mid-cap funds that have been going since 2012. And way ahead of the ASX Small Ordinaries total return index which has returned 6.7% per annum – see chart below.

Why the Global Opportunities Fund may follow in the footsteps of the Ophir Opportunities Fund with a ‘soft close’

Relative to other global small/mid-cap funds available in Australia that have been going since at least the Fund’s inception in 2018, our Global Opportunities Fund also has a significant outperformance gap (see below).

For those unfamiliar, the Global Opportunities Fund has the same investment process and is run in a similar fashion to our Ophir Opportunities Fund, just in global small caps not Aussie small caps.

It also shares many of the same investment analysts and portfolio managers who have worked on the Ophir Opportunities Fund.

But while the Australian Ophir Opportunities Fund remains closed to new money at capacity, as it has been since 2015, the Ophir Global Opportunities Fund remains open.

However, to give ourselves the best chance of outperforming over the long term, in the not-too-distant future the Global Opportunities Fund may ‘soft close’ to new investors and advice groups. The reality is a month like April does chew through capacity and brings forward the date we’ll have to close the fund to those new investors.

The fund remains open and any decision regarding ‘soft close’ will be communicated in advance.

How Ophir is generating outperformance with no big skew to ‘hot’ themes or sectors

There is no getting around the fact that when it comes to investing, the hottest ticket in town is Artificial Intelligence (AI).

We use it in our business, and it can do wonderful things. Almost all the CEOs we talk to have a plan to implement it across their businesses.

The capex cycle behind this new technology is literally unprecedented. The current data centre build out eclipses the inflation-adjusted spend of every other megaproject in U.S. history, from the railroads, interstate highways, the Apollo Program, and the Manhattan Project.

Below, we have aggregated the 5,000-odd global small and mid-cap stocks in the MSCI World SMID Cap Index (our Global Opportunities Fund’s benchmark) into 60 industry groups.

We then show the share price performance of each industry group over the year to the end of April from best (‘Technology Hardware up 148%’) to worst (‘Advertising and Marketing down -32.1%’).

Source:Bloomberg.

Why has the technology hardware industry sector killed it over the last year?

Because it’s the picks and shovels of the AI boom. Two major sub-sectors of Technology Hardware are:

• Memory stocks, like SanDisk, Seagate and Western Digital.
• AI networking stocks, including Lumentum, Applied Optoelectronics and Ciena.

Each of these stocks is up 5x or more over the last year.

SanDisk is up a crazy 2,939%. That means a $100 investment a year ago would be worth $3,039 today.

To put that in perspective, if you had a 30-stock portfolio with $100 in each and 29 didn’t go anywhere and were worth $100 still at the end of the year but the 30^th stock was SanDisk, your portfolio return for the year would be 98%! That can hide a lot of sins in the rest of your portfolio![2]

Semiconductor stocks are also on a tear.

As measured by the SOX Index, semiconductors gained for 18 days straight in April. That’s the longest streak ever.

The ratio of the SOX Index to the S&P 500 is now well past the highs seen during the early-2000s dot-com bubble.

We are content as stock pickers

The problem with the ‘just buy big AI beneficiaries’ stocks is that while they have a lot of momentum, we can’t completely write off the possibility of an overbuild. And at some point, the popping of an AI bubble.

At Ophir we are not trying to ride big thematics with big overweight positions to them. If you are good at doing that, then play in large caps or run a macro hedge fund running tens of billions of dollars where you are not constrained by the capacity and liquidity issues that feature in small caps.

We are picking stocks with idiosyncratic drivers of their earnings.

We do have some exposure to the AI thematic, but we are not massively over-indexed to it.  You can see this in the red line of the chart above, which shows our over- or underweight position compared to the benchmark weight in each of the 60 industries.

None of our over- or underweight positions is that big.

Our Global Opportunities Fund has returned a strong 32.9% over the year to the end of April … without having any big overweight position in the industries (most of them AI-related) that have shot the lights out over the last year.

We like that.

We think it means we don’t have to rely on trying to time a certain thematic that has a lot more eyeballs on it.

We’re content picking stocks, not themes, because it means we will have lots of diverse drivers of earnings growth in our Funds. And it means we’re not putting performance at risk if the share prices of stocks exposed to a big thematic reverse at some point, as we’ve seen time and again throughout history.

[1] For those investors worried about any further appreciation in the Australian dollar our Global Opportunities Fund also has a currency-hedged version available (here).

[2] Admittedly SanDisk would have gone from 3.33% of your portfolio to over 50% of it by the end of the year and unless you had a cast-iron stomach would have sold down the holding before it reached half of your portfolio.

As always, if you’d like to chat to us about any of the Funds, please feel free to call us on (02) 8188 0397 or email us at ophir@ophiram.com.

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.

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The plumbing of global markets

Some of the best businesses in the world are the ones nobody talks about at dinner parties. Toll roads. Pipelines. Stock exchanges. Payment networks.

The common thread is that they sit in the middle of something essential, charge a small fee for every transaction that flows through, and are extremely difficult to dislodge.

They tend to be regulated. They tend to compound quietly. And they tend to be valued accordingly – on premium multiples that reflect the durability of the cash flows.

But every now and then, the market hands you one of these businesses at a fraction of the multiple it deserves.

One is clearing broker Marex (NASDAQ: MRX).

Its shares are trading at a discount to its closest peers simply because the market is failing to appreciate that it is, in essence, a structurally protected, infrastructure-style compounder.

A great business

Marex is one of the largest clearing brokers in the world. One of only ~60 Futures Commission Merchants (FCM) globally, it sits in the middle of one of the most essential pieces of financial infrastructure in modern markets.

To understand why Marex is a great business, you need to understand what clearing actually is.

When a hedge fund or an airline trades a futures contract, they don’t trade directly with the exchange. The exchange uses a central counterparty clearing house (CCP) – a regulated utility that becomes the buyer to every seller and the seller to every buyer, mutualising risk across the system. CCPs like Chicago Mercantile Exchange (CME) and Intercontinental Exchange (ICE) charge a fee for this service and trade on premium multiples (around 20x earnings) as they are some of the most prized financial infrastructure in the world.

But CCPs are not allowed to deal with end clients directly. Regulation requires them to be neutral risk utilities, insulated from credit risk. So between the client and the CCP sits a clearing broker – the FCM – that takes on the operational burden, fronts the margin, manages credit, and handles defaults when they occur.

This is what Marex does. They are the firm that absorbs everything the CCP cannot touch.

Source: Marex Investor Presentation, May 2026.

Marex went public in April 2024 when it was the fastest-growing FCM by client assets in the US, and we estimate the company now has more than 10% market share in clearing, up from around 3% in 2022.

Three Structural Tailwinds

But our path into Marex started with a peer and the incredibly strong tailwinds we found for clearing and execution businesses.

We had been doing initial work on StoneX (NASDAQ: SNEX), Marex’s closest listed peer in the US, after StoneX made a transformative acquisition.

We flew to New York to meet with the StoneX team in person and caught up with their management again when they passed through Denver.

Those conversations crystallised something for us: clearing and execution sit in a rare position in financial markets because of three structural tailwinds compounding on top of one another:

1. Growth in the underlying market.

Total exchange-traded contract volumes have been growing at a high-single-digit pace for years. That’s happening as more activity migrates from over-the-counter markets into centrally cleared venues, more asset classes get listed, and global hedging needs continue to expand.

2. Share gains from the banks.

International banking regulations, Basel III and Basel IV, have made clearing structurally uneconomic for large bank incumbents, compressing their returns and forcing them to retreat or exit entirely. But the clients haven’t gone anywhere. The activity hasn’t disappeared. It is simply migrating from the banks to a small group of specialist non-bank platforms – of which Marex and StoneX are the two largest listed examples. The result has been a long, slow exit by the banks. The number of FCMs globally has fallen from over 300 in the 1990s to around 60 today.

3. Consolidation of the fragmented non-bank tail.

The smaller end of the FCM market lacks the technology, capital, and regulatory expertise to compete at scale. The larger specialists – Marex chief among them – are consolidating these books inorganically, improving share, pricing power, and overall market quality in the process.

We usually work hard to find one structural tailwind in most investments. Finding three in the same business is rare.

Building conviction and dispelling doubts

But the more we worked on the sector, the more obvious it became that Marex was the best-positioned name in the space. For a start, it had the highest-quality earnings mix. In a normal quarter, around 80% of group profit comes from the most defensible parts of the value chain: clearing and execution. StoneX had a much smaller weighting to clearing and execution.

Marex also had the best technology platform and the most disciplined M&A track record. Ian Lowitt, the CEO, has built Marex over more than a decade through a combination of disciplined organic growth and a series of well-executed acquisitions. Each acquisition was made at attractive an valuation (often at or below tangible book value) and integrated onto the group’s single global technology platform.

Yet trading on less than 10x forward earnings, Marex had the lowest multiple of its peer group.

Why was Marex’s multiple so low?

One reason was a short-selling report published in August 2025 by short-selling research firm, NINGI Research. Titled ‘A Financial House of Cards’, the report alleged accounting irregularities, off-balance-sheet entities, and conflicts tied to the CEO’s prior career. Marex fell sharply when it was published.

If anything, however, the report helped us. It gave us a discounted entry point and a clear set of bear points to stress-test.

We concluded the short thesis lacked substance and started buying Marex in October 2025.

We went through every claim in the short report ourselves, then with sell-side analysts, then with the company directly. Marex publicly rebutted the report twice. S&P Global Ratings reviewed the allegations and affirmed Marex’s BBB- rating with a stable outlook.

Fantastic financial results

On the morning of their investor day in late March, we caught the red-eye from Denver to New York. Arriving early, we were the first non-Marex person in the conference room and were able to spend time one-on-one with the entire senior management team before the other investors and brokers arrived.

And, importantly, Marex continues to report record financial results.

Adjusted profit before tax has compounded from US$62 million in 2020 to US$418 million in 2025 – a compound annual growth rate of 47%. (Growth was 30% in 2025 alone.) Adjusted EPS came in at $3.99 for 2025, beating consensus by 4.4%.

Source: Marex Investor Presentation, May 2026.

Marex’s recent Q1 2026 result was another record:

• Revenue was $692 million, up 48% year-on-year.
• Adjusted profit before tax of $153 million, rose 59% year-on-year.
• The result was comfortably above the top end of the guidance the company had provided just six weeks earlier at its investor day.

This was achieved despite absorbing a $34 million loss from a single client default in natural gas trading in January – a useful, real-world demonstration that the business is built to take occasional shocks without breaking.

Source: Ophir. Bloomberg data as at 30 April 2026.

The big misunderstanding

Yet despite this strong financial performance and the debunking of the short report, Marex still trades on 10x earnings.

At the heart of this mispricing is an ongoing misunderstanding of what Marex does.

The market is treating Marex as a cyclical commodities broker – grouping it with low-multiple names like Virtu, TP ICAP and BGC.

But, as we saw above, a meaningful portion of Marex’s earnings behaves like infrastructure.

Those earnings are underpinned by sustained sequential growth in its clients’ clearing balances, as well as growth in the market volumes in total contracts cleared. What’s more, its Prime Services business continues to deliver outsized market growth.

CCPs, such as CME and ICE, trade on around 20x forward earnings. Interactive Brokers (which partly overlaps Marex) trades on 32x.

Given Marex sits between a clearing utility and a prime broker, we don’t think it deserves the premium multiples of the likes of CCPs and Interactive Brokers. But we don’t think it deserves to trade like a low-quality commission broker either. (Even StoneX, the closest direct comparison, trades on ~19x.)

Why Marex Fits This Environment

In a market consumed by the AI debate – where every software business is being asked whether its cash flows are durable at all – Marex is the opposite kind of investment.

It is a regulated, mission-critical piece of financial infrastructure. Its moat is created by Basel rules, CCP access caps, and post-2008 clearing mandates – not by software, brand, or distribution.

It benefits from volatility rather than being threatened by it. And the structural shift driving its growth (banks exiting clearing, activity migrating to non-banks) has years left to run.

It is, in short, the kind of compounder that doesn’t need a benign macro to work. It just needs the plumbing of global markets to keep flowing – and that, increasingly, runs through Marex.

Building with surgical precision

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Have you ever had a family member rushed into emergency surgery for an aortic dissection? Then you’ll know it’s one of medicine’s most terrifying experiences.

The aorta – the body’s largest artery – carries blood from the heart to the rest of the body. When it tears, every minute counts.

Treating these conditions requires some of cardiac medicine’s most complex and high-value surgical procedures. And behind many of those procedures sits a company most investors have never heard of: Artivion.

Artivion (NYSE: AORT) is a ~US$1.8 billion medical device company headquartered near Atlanta, Georgia, focused exclusively on aortic disease.

Their product portfolio spans four key areas: aortic stent grafts, the On-X mechanical heart valve, surgical sealants (BioGlue), and implantable human tissues. They sell into more than 100 countries worldwide.

We’ve been deeply engaged in Artivion for several years and believe the company is in the middle of a multi-year, product-led growth phase that will extend to the end of the decade.

The recent pullback in the stock – down roughly 25% from its November 2025 highs – has allowed us to re-enter (we first bought pre-COVID then sold at the 2025 highs) at a valuation that is deeply mispriced.

Finding Artivion … and Pat

We first discovered Artivion on a trip to Atlanta in early 2019 when visiting several companies. During that visit, we met with Artivion’s CEO, Pat Mackin.

Pat explained how he had spent over a decade at Medtronic, one of the largest medical device companies in the world. His last role was Senior Vice President presiding over the Cardiac Rhythm division – at the time, Medtronic’s largest business unit.

Pat joined what was then CryoLife (the company rebranded to Artivion in 2022) because he saw a big opportunity: building a company focused solely on the aorta.

By concentrating on the cardiac surgeon customer base, and with a single, focused sales force selling several product families to a large total addressable market (TAM), Artivion could gain significant operating leverage.

What we saw was a company with a market cap of sub-US$1 billion and revenues of sub-$250 million, run by an extremely high-quality manager who had left a $5 billion business segment because he believed he could not only compete with it, but beat it and take meaningful share.

At the time, the company had just two analysts covering it.

It was one of the clearest value creation stories we had encountered.

A Decade Assembling a Comprehensive Aortic Portfolio

When we first met Pat in early 2019, he had been at the company a little over four years and had already begun materially reshaping its portfolio.

He sold several non-core products and, through a series of acquisitions and partnerships that now form the backbone of Artivion’s product roadmap, he’d started realigning the business exclusively toward the aorta.

Between 2016 and 2020, there were four key strategic moves:

1. The first major move was the acquisition of On-X Life Technologies in January 2016 for ~$130 million. That brought the On-X mechanical heart valve into the portfolio and strengthened the company’s presence in aortic valve replacement.
2. The following year, in December 2017, came the pivotal deal. In a ~$250 million transaction, Artivion bought JOTEC, a German developer of advanced endovascular stent grafts (minimally invasive surgery to repair an aneurysm). This gave Artivion immediate access to the ~$2 billion global stent graft market and significantly expanded its minimally invasive aortic capabilities.
3. Then in 2019, Artivion entered a strategic partnership with Endospan for the NEXUS aortic arch stent graft system – a catheter-based solution for total endovascular repair of the aortic arch (which supplies blood to the brain, head and arms).
4. And in 2020, the company acquired Ascyrus Medical for up to $200 million, bringing into the portfolio the AMDS (Ascyrus Medical Dissection Stent) – a hybrid prosthesis designed to remodel the aortic arch in acute Type A aortic dissections.

Pat played a huge role in creating this value. These were competitive processes where he would personally fly out to close deals – including on public holidays and family vacations – to make sure Artivion was the successful bidder against larger, better-capitalised peers.

The result is a comprehensive aortic portfolio – spanning open surgical, endovascular, hybrid, and valve solutions – that now tracks from the heart down to the bottom of the aorta in the most complex, high-value areas of aortic surgery.

Source: Artivion Corporate Overview February 2026.

New Products Set to Accelerate Growth

Artivion is particularly compelling now because its new products are set to accelerate growth.

Nearly $500 million of new TAM is opening up in the next 12–18 months through key products, AMDS and NEXUS.

Source: Artivion Corporate Overview February 2026.

These are not speculative launches. Both products have already been used in Europe with CE Marking approval (which allows products to be sold in the European Economic Area). That gives us a high degree of confidence in their clinical profile. The risk here is regulatory timing, not clinical efficacy.

Meanwhile, On-X continues to compound. It has grown at double digits for over a decade and now represents almost 20% of the business. New clinical data has demonstrated a mortality and reoperation benefit in patients aged 65 and over compared to bioprosthetic valve (made from animal tissue) alternatives. That effectively opens a new $100 million annual US market that Artivion can pursue.

For the full-year 2025, Artivion delivered $444 million of revenue (13% adjusted constant currency growth), $90 million of adjusted EBITDA (26% growth). For 2026, the company has provided guidance of revenue of $486–504 million and adjusted EBITDA of $105–110 million.

Source: Artivion Corporate Overview February 2026.

Stent grafts represent approximately $200 million, or 40% of Artivion’s revenue today. This segment grew 44% year-on-year in Q4 2025 (36% on a constant currency basis).

We believe the upcoming product launches can facilitate a ~25% compound annual growth rate (CAGR) in revenue for stent grafts over the next three years, which in turn means the company can deliver double-digit growth at the group level through the end of the decade.

The Edge: Dozens of Conversations with Cardiologists

What has given us added confidence in Artivion is that we have spoken to dozens of cardiologists based in the US and Europe regularly over the past two years, as well as pre-COVID when we first invested.

This gave us a strong sense of new product adoption, competitive positioning against larger peers, and emerging technologies.

We’ve also spoken directly with ex-sales reps and competitors over the years.

The cardiologists are key.

Their sentiment toward Artivion continues to be very positive, and awareness is growing, which will facilitate higher product cross-selling in the future.

The concentrated nature of the cardiac surgeon customer base means that word-of-mouth and clinical evidence travel fast. That dynamic favours a company with differentiated products and a dedicated sales force.

Materially Mispriced

Despite this strong market position and mid-20% EBITDA CAGR outlook, Artivion currently trades on mid-teens EBITDA.

We think that is materially mispriced.

Additionally, trading at ~3.5x sales, the company will likely attract acquisition interest from a larger peer at 5–7x sales given the attractive and relatively low-risk growth rates, large TAMs, and high potential synergies from duplicative sales forces. That implies significant upside from current levels.

The stock has pulled back from its November 2025 highs on a combination of conservative management guidance into a year of elevated capex (~$50 million, up from $39 million) and outsized funding requirements for earn-outs.

Last year, the market did get ahead of itself and priced in an acceleration of product-led growth into 2026. But when the timeline reverted to the original 2027 trajectory, the share price gave back those gains.

Still, for us, this was the opportunity because the fundamental thesis hasn’t changed, and we have been able to buy a high-quality, accelerating growth story with over 20% three-year EBITDA CAGR at a ~50% discount to standard sector takeout multiples.

Source: Ophir. Bloomberg.

Exactly what we are looking for in this environment

Artivion is exactly the kind of name we’re drawn to right now: a medtech compounder with product-cycle driven growth, limited GDP sensitivity, and a valuation that reflects neither the clinical pipeline nor the margin expansion runway.

It doesn’t need a resolution to the AI debate to work. It doesn’t need rate cuts. It doesn’t need a benign tariff outcome.

It just needs its products to keep performing – and so far, they are.

The 5 Most Important Charts Defining Markets Today

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In this Letter to Investors, we look at

• How the bond market is causing Trump to Always Chicken Out (TACO) and what that means for the likely duration of the Iran War.
• Why small caps are in a much better position to weather the Iran oil price spike than the Russia/Ukraine spike of 2022.
• The curious case of Nvidia now being cheaper than a global oil giant.
• How the RBA’s rate hikes have put Aussie small caps on sale, and why that’s great news for future returns.

I must say, it’s been tough choosing when to sit down and write this Letter. With a new rolling deadline for the Iran war always “just hours away”, I kept putting it off.

A thought invariably rolled through my mind: “Before putting pen to paper, let’s wait for the arrival of the next big market-moving news.”

The reality, though, is in a one-variable market – with daily market moves almost solely dictated by war headlines – it’s best just to get on with it.

Why? Because the end of the war could be this week … or it could still be months away.

(HINT: As we’ll elaborate later, it’s more likely weeks than months. Polymarket has a 78% chance that Trump will announce the end of military operations against Iran by 30 June.)

But our edge is not trying to ‘outguess’ the millions of other investors about Trump’s next tweet; our edge is analysing small-cap companies, where few people are looking, through intensive research and travel.

So, while our Ophir Funds were down fairly in line with the market/their benchmarks in March, that’s ok with us.

Every one of the circa 80 global and regional share market indices we track were down in March due to the war, so it was hard to avoid!

(For us to have materially outperformed last month, we would have had to change our style from Growth to Value, and buy energy, financials, telcos and utilities! That’s not quite our core style.)

In this month’s Letter, we share five charts that have really caught our attention over the past month and helped shape our thinking about markets.

But first, thank the bond market for a happy TACO-versary

Trump Always Chickens Out, or TACO, has been used to describe President Trump’s tendency to escalate and threaten, then, when faced with pressure, to de-escalate and back down.

Just over a year ago, on his so-called ‘Liberation Day’, April 2, 2025, Trump tabled a broad package of reciprocal tariffs. Share markets plummeted. A few days later, Trump retreated and announced a 90-day grace period on tariffs.

What caused the about-face?

It’s widely speculated that he got a tap on the shoulder from his Treasury Secretary, Scott Bessent, who saw the 10-year bond yield shoot up to 4.5% and warned it would worsen the US’s already ballooning debt costs and fiscal deficit.

When you have US$39 trillion in government debt and are adding a US$2 trillion fiscal deficit to it every year, higher interest rates are like pouring kerosene on an already raging inferno.

Fast forward almost exactly a year, and on April 7, Trump warned he would obliterate Iran and a “whole civilisation will die” if Iran didn’t open the Strait of Hormuz. Then, a day later, he agreed to a last-minute two-week ceasefire.

As higher oil prices stoked inflation and rate rise worries, the 10-year bond yield rose from around 3.9% at the start of the war in late February to over 4.4% in late March.

Chart 1. TACOnomics

When the 10-year (or Bessent) speaks, Trump listens.

Source: Ophir. Bloomberg.

Again, it was the bond market and higher yields that caused Trump to TACO and not let the war go on too long.

It reminds us again of that famous quote by Bill Clinton’s political advisor, James Carville:

“I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

Everybody, including Donald Trump.

We think this is more likely to mean, like most geopolitical events, that the negative share market impact is relatively short lived before the recovery takes hold.

Charts 2 & 3. Margin of Safety

For small caps, this will not be a repeat of the 2022 oil spike.

While the war may not drag on too long, small-cap investors could be forgiven for having PTSD. The current oil price spike, after all, might remind them of 2022.

Almost exactly four years before the US and Israel launched coordinated military operations on Iran, Russia (the world’s third-largest oil producer) invaded Ukraine.

This led to a sequence of events you can see in the chart below. Oil (brown line) spiked and fuelled already-rising post-COVID inflation.

Source: Ophir. Bloomberg.

Both short-term interest rates (controlled by central banks) and long-term interest rates (controlled by the market) started rocketing higher. The gold line shows the US 10-year bond yield (the same one TACO’ing Trump in the first chart in this Letter).

Already sensing that rates would rise during the COVID recovery, equity markets had begun selling off in 2021, but the falls continued in 2022 on the back of the oil spike. You can see this for both US large caps (green line) and small caps (orange line) in the chart below, where we highlight the fall in their P/E ratios.

Source: Ophir. Bloomberg.

You can also clearly see that small-cap valuations fell much more – as we were painfully aware here at Ophir!

(All the while, the recession probability was rising in the US (inverted blue line) and peaked at over 60% in late 2022/2023.)

Which brings us to THE question.

Should we be afraid that today’s high oil prices are going to cause a replay sell-off of small caps?

If oil prices stay high enough for long enough, it’s certainly a possibility that central banks may have to raise interest rates to combat higher inflation, increasing the risk of recession and share market falls.

Markets today, however, are not really expecting that scenario for a couple of key reasons:

1. 2022 was an oil price spike on top of already high and rising inflation from COVID. By contrast, this time, prior to the Iran war, US inflation had been falling, and there were expectations of Fed rate cuts, not hikes.
2. Essentially, this current spike in oil is self-imposed by the US. It can wind down military operations and relieve pressure on the oil price.

In many ways, Trump will have to weigh a long, drawn-out war (if needed to reach objectives in Iran) against the economic cost to the US (higher inflation and interest rates and potential recession).

Most suspect that, because it will likely cost him dearly at the mid-term elections in November, Trump won’t think the cost of a long war is worth bearing.

That is likely why recession probabilities haven’t spiked and why the market is not yet pricing in rate hikes by the Federal Reserve.

Moreover, with a P/E of around 15x, US small-cap valuations are relatively cheap and well below the more expensive 22-23x before the sell-off in 2021.

Given that the lowest small caps have reached in the last three bear markets are around 11-12x, small caps today have a lot more downside protection and margin of safety.

Chart 4. Nvidia’s Crude Awakening

This next chart shows one of the craziest stats we came across in the last month.

Nvidia’s one-year forward PE: 18.7x.

ExxonMobil: 20.2x.

That’s right, Nvidia stock is now cheaper than ExxonMobil.

Let that sink in.

Source: Bloomberg. Data at 27 March 2026.

The company supplying the picks and shovels for the AI gold rush – the most important technology buildout of our lifetime – trades at a lower one-year forward P/E (price-to-earnings ratio) than an oil major that has roots back to the 1870s!

At Ophir, we watched Nvidia’s meteoric rise and kept asking ourselves: when does the valuation gravity eventually kick in?

Well, here we are.

Three years ago, the market was willing to pay almost anything for AI, and at a P/E of 60x had priced Nvidia to perfection and then some.

Today, despite expecting Nvidia’s earnings to almost double this financial year from US$113 billion to US$203 billion, the market is now pricing Nvidia more like a utility.

It’s not that Nvidia’s share price is down a lot that’s causing its valuation to fall – it’s only about 12% off its all-time highs.  The market is just having a hard time maintaining Nvidia’s P/E. If the market did maintain the P/E, Nvidia’s market cap would double to over USD$8 trillion!

Investors are clearly questioning the durability of the AI capex cycle and whether it has gotten ahead of itself.

On the flip side, ExxonMobil’s P/E averaged 11x over the last 5 years. Then oil shot up on the back of the Iran war, and Exxon is now trading at almost twice that P/E.

We’re not saying Exxon is overvalued. Oil is a critical business and Exxon is no doubt exceptionally well run. But the optics of this comparison say something important about how dramatically sentiment can swing.

Have these two companies’ fortunes really changed that much over the last six months – when Nvidia’s P/E was twice that of Exxon – or is this one of the great mispricings of the decade?

Chart 5. Aussie Small Caps Marked Down

For over a year now, we have been beating the drum about how cheap US and global small caps have been versus large caps.

But one of the great untold stories of the last couple of months is just how cheap Aussie small caps have become.

At a 13.9x price-to-earnings ratio (one-year forward earnings), the only two other times they have been this cheap in the last decade are:

1. March 2020, when the COVID sell-off hit.
2. Very briefly in June 2022, during the fastest global rate-hiking cycle in 40 years, when the consensus call from economists was recession.

Perhaps even more stark is Australian small caps’ valuation relative to Australian large caps.

Over the last 20 years, Aussie small caps have traded at an average P/E premium to large caps of +0.7x.

Today they are trading almost 4 P/E points lower – the LOWEST in the 20 years of data available.

Source: Ophir. Bloomberg. ASX Small Ordinaries vs ASX 50.

A big cause has been the RBA rate-hike cycle. It started in early February after a sticky inflation reading for the December 2025 quarter (released 28^th January 2026).

Since that late-January CPI report, the ASX Small Ordinaries index fell -16.6% to the end of March, while the ASX 50 index has fallen just -2.4%.

With Aussie small-cap valuations at 13.9x, they are now only marginally above the 13x they bottomed at after the 2022 sell-off, and the 12x they bottomed at in COVID.

So it appears much of the RBA hiking cycle and Iran war fears are priced in.

Are they at their lows?

Who knows.

But, absent any unforeseen events, they historically haven’t been much lower.

And as the research tells us: the single best predictor of an asset class’s return over the long term is its starting valuation.

And on that score, Aussie small caps have now started to look cheap, especially compared to Aussie large caps.

As Buffett said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.

We think that applies well to Aussie small caps today. It’s our job here at Ophir to find the quality merchandise within small caps.

As always, if you’d like to chat to us about any of the Funds, please feel free to call us on (02) 8188 0397 or email us at ophir@ophiram.com.

Thank you for entrusting your capital with us.

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

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There is no doubt the SaaSpocalypse (the savage sell-off of software stocks) was bad. But since we published our piece on the topic last month, titled SaaSpocalypse Now!, the AI disruption debate has intensified further, and the sell-off has broadened well beyond SaaS.

This was driven by several new tool releases from Anthropic, but it culminated when Citrini Research released a thought experiment titled, “The 2028 Global Intelligence Crisis”, on the 22nd of February. The piece imagines an AI automation shock that sees human workers replaced so rapidly that it ultimately tips the economy into a demand and credit spiral.

Source: Ophir, Bloomberg, data as at 10 March 2026. Software measured by S&P North American Technology Software Index.

We believe there are three things investors need to be doing to navigate this uncertainty:

1. Firstly, they need to understand that the debate around agentic AI disruption is more nuanced than doomsday scenarios suggest.
2. Secondly, they also need to bucket which companies will be best protected from AI disruption and will become opportunities when the debate settles.
3. And they also need to look beyond the AI noise for compelling opportunities. (One we’ve found is Artivion, our brief case study.)

Below, we examine each of these.

The Doomsday Scenario Misses Real-World Offsets

First up, we take AI disruption risk seriously. But the AI doomer fanfiction disregards the frictions, constraints, and offsets that matter in the real economy.

We don’t believe AI agents will create as much disruption as the Global Intelligence Crisis suggests for several reasons:

1. Adoption is not the same as capability

Even if the capability of AI models improves quickly, it doesn’t mean that enterprises can roll out their use quickly. Real-world deployment is challenging – it runs into process change, integration risk, legal liability, governance, and regulatory constraints. Capability can move fast. Implementation is slow, expensive, and messy.

Source: Anthropic: Labor market impacts of AI, 5 March 2026.

2. Physical constraints create a speed limit

For large-scale displacement of SaaS to happen, it would require vast infrastructure: chips, data centres, energy, and connection to the grid. If the supply of compute – the processing power needed for AI – can’t keep up with demand, its marginal cost rises. It will become less appealing for enterprises to switch to compute-intensive AI agents and substitution will slow. There is, therefore, a real possibility that infrastructure bottlenecks will limit the pace of near-term displacement.

3. The labour market is not yet showing collapse

So far, the data does not support ‘systemic’ displacement. In their own rebuttal piece, Citadel Securities pointed to still-low unemployment and continued demand for software engineers as evidence that the feared feedback loop is not present today. While there has been an increase in tech companies pointing to AI as the reason for layoffs, there is a strong case to be made that many of these businesses had bloated work forces following hiring sprees during the COVID period. While AI is clearly driving efficiency, there is likely an element of it being used as an excuse for these businesses to right-size their work force.

Source: Citadel Securities, Indeed. Figures are for illustrative purposes only. Past performance figures do not guarantee future results.

4. AI is, mechanically, a supply shock

Finally, automation is fundamentally a productivity shock, which historically lowers marginal costs and expands the frontier of what can be produced and consumed. An economic collapse scenario requires extra assumptions layered on top: failed redistribution of wealth, no reinvestment of capital income generated by AI, and a sudden absence of new categories of demand. While this is possible, it’s highly unlikely this would occur.

The Real Debate: Speed of Absorption

That being said, we are not arguing that AI won’t disrupt white-collar jobs. It almost certainly will (see Wisetech, Block and Atlassian). To us, the real question is: How quickly the system can absorb that disruption?

If AI enables firms to do the same work with fewer people, labour displacement could occur faster than wages, policy, and new job categories can adjust. That’s the scenario that creates genuine macro risk – not the existence of automation itself.

History suggests new technologies eventually create new industries and new demand, but the transition is rarely smooth. The adjustment path matters enormously. Will we see a gradual reallocation over years, or a sharper reset over quarters?

And if the transition is too abrupt, the stabilisers will come. Government support could become an important offset – whether that’s targeted wage subsidies, retraining programs, or tax reform. Or will the productivity enhancement be so significant that we see what Elon Musk has been advocating for: Universal Basic Income (UBI)?

The point isn’t to predict the policy mix. It’s to recognise that society doesn’t just accept a sudden income shock without a response.

In our view, the AI disruption debate is not about ‘doom versus boom’. It’s a question of timing, friction, and policy reaction – and the market needs those variables to become clearer before terminal values and multiples are revised materially higher.

Our Framework: Disrupted, Protected, Native

To navigate this regime shift, we’ve been grouping AI exposure into three buckets:

1. AI Disrupted – Traditional seat-based SaaS and other business models where AI can plausibly substitute the paid workflow.
2. AI Protected – Businesses with stronger moats: regulatory barriers, proprietary data, network effects, infrastructure positioning, mission-critical integration, and switching costs.
3. Native AI – Unlisted, early-stage, or not yet created.

The issue today is that Buckets 1 and 2 have been sold off together. The market is not yet consistently distinguishing between ‘disrupted’ and ‘protected’.

And while our Funds haven’t been immune from this disruption via some software, ad-tech, and AI-adjacent holdings, we resisted the temptation to ‘double-down’ by increasing the weights in these names while the debate continues.

Our view is that Buckets 2 and 3 are the long-term winners, which means Bucket 2 should recover once markets regain confidence in certain competitive moats that will protect those businesses from disruption.

That is the set-up we are watching for before we materially increase weights in selected ‘protected’ software names trading on lower multiples.

Looking beyond the AI noise

Amidst the uncertainty, many investors have been seeking security in themes such as AI infrastructure/semis and defence. While we have exposure to these thematics, we are conscious of crowding. Similarly, we are not piling into cyclicals or going maximum overweight healthcare.

While we do have exposure to AI infrastructure and defence, we’re complementing it with names across a diversified range of sectors that have been overlooked and offer compelling return profiles at attractive valuations. And we’re actively seeking less GDP-sensitive names where revenue is not closely tied to the macro cycle.

Over the past two months, therefore, we’ve added a broad range of companies spanning:

• Countercyclical consumer beneficiaries
• Highly resilient industrials
• US medtech

Medtech Compounder: Artivion (NYSE: AORT)

One recent addition that illustrates how we’re finding compelling opportunities away from the AI noise is Artivion, a ~US$2bn medical device company headquartered near Atlanta, Georgia.

Artivion is focused exclusively on aortic disease – a highly specialised area of cardiac and vascular surgery. Their product portfolio spans four key areas:

• Aortic stent grafts
• The On-X mechanical heart valve
• Surgical sealants (BioGlue)
• Implantable human tissues.

They sell into more than 100 countries worldwide.

We’ve been deeply engaged in Artivion for several years and followed the company through multiple product cycles, clinical readouts, and management meetings. The work we’ve done leads us to believe the company will experience a product-led growth acceleration into 2027 and beyond.

The stock recently pulled back after the market got ahead of itself when it priced in the expectation that some of this product-led growth acceleration could be pulled forward into 2026. When the timeline reverted to the original 2027 trajectory, the share price gave back those gains.

For us, this was the opportunity because the fundamental thesis hadn’t changed. We now believe we’ve been able to buy a high-quality, accelerating growth story with over 20% three-year EBITDA compound annual growth rate (CAGR) at a ~50% discount to standard sector takeout multiples.

Source: Ophir, Bloomberg, data as at 11 March 2026.

Artivion is exactly the kind of name we’re drawn to right now: a medtech compounder with product-cycle driven growth, limited GDP sensitivity, and a valuation that reflects neither the clinical pipeline nor the margin expansion runway.

It doesn’t need a resolution to the AI debate to work. It just needs its products to keep performing – and so far, they are.

The debate continues

We also have a deep pipeline of potential investments in active, high-return opportunities across healthcare, industrials, financials, and – of course – AI winners and defence names.

We will continue, however, to maintain high hurdle rates due to crowding risks.

When it comes to AI, while the worst of the rotation appears to be over and AI-disrupted baskets of stocks have recently had some reprieve, we still don’t see an imminent resolution to this debate.

This will limit the extent to which beaten-up names can re-rate, with multiples likely to remain depressed compared to historical levels.

Meanwhile, the market is likely to keep oscillating between ‘doom’ and ‘boom’ narratives as new tools launch and macro confidence shifts.

We are pleased to announce that investors in the Ophir Global Opportunities Fund can now switch between Class A (Unhedged) and Class H (Hedged to AUD) unit classes, giving you greater flexibility to manage your currency exposure over time.

What this means for investors

The Ophir Global Opportunities Fund is available in two monthly priced unit classes:

• Class A — Unhedged exposure to international equities, meaning returns reflect both underlying portfolio performance and movements in foreign currencies relative to the Australian dollar.
• Class H — Currency-hedged exposure, where foreign currency risk is hedged back to AUD, isolating returns to the performance of the underlying portfolio.

Switching between these classes allows investors to adjust their currency positioning as their views or circumstances change, without needing to fully exit and re-enter the fund.

How to switch

Investors can initiate a unit class switch by completing the below “Switch Form“, also available on the Funds webpage. Switch requests must be received by our unit registry, Automic Group, at least three business days prior to month end and will be processed at NAV with no buy/sell spread applied. Please read the Product Disclosure Statement and Reference Guide to which the Switch Form applies.

Important — tax consideration

Investors should be aware that a unit class switch may constitute a Capital Gains Tax (CGT) event. You should consider obtaining professional advice from your financial adviser or tax accountant before proceeding.

Global Opportunities Fund: Switch Form

Please Note: Unit class switching is only available to direct investors and is not available to those invested via an investment platform.

The three big events impacting markets today

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In this Letter to Investors, we look at

• Why the history of past conflicts suggests the record oil price spike caused by the US/Israel v Iran war may not last, and why that will be good for equities.
• The momentous pivot in market leadership away from the large-cap growth stocks (the Mag-7), and what that means for the outlook for equities.
• The role played ‘doomer’ scenarios around the impact of AI agents on software stocks and whether they are likely to be true.
• The macro factors giving us confidence that small caps will continue to outperform.

The three major events impacting ‘top down’ investor thinking

Share markets generally had a pretty good February.

But wait, didn’t the S&P500 fall last month?

It did. It was down -0.8%. That’s its first negative total return month since the Liberation Day stinker back in April 2025.

But that’s just what was visible at the surface.

If we look deeper, the US share market in February was dragged under by the dead weight of the Magnificent 7 (Amazon, Apple, Google, Meta, Microsoft, Nvidia, Tesla). As a collective group, the Mag 7 slumped -7.3%.

But what if we remove the distorting effect of the Mag 7’s gigantic size? Well, on an equal weighted basis – where all 500 companies instead get a 0.2% weight each – for the month, the S&P500 was actually up +3.6%!

Most other major markets were also up, including

• Australia (ASX200, +4.2%)
• Europe (MSCI Europe, +4.1%)
• The UK (FTSE 100, +7.0%)
• Japan (Nikkei, +10.4%).

But then in early March, markets were rocked by the US/Israel attack on Iran that sent oil prices soaring and equities sharply lower.

We now have three big, overlapping forces that are creating rough seas and causing confusion for markets and investors:

1. The new US/Israel v Iran war that kicked off at the end of February.
2. A rotation in market leadership that has ended three years of large-cap growth-stock leadership by the Magnificent 7. This has been exacerbated by the fog hanging over software stocks from doomsday scenarios around the impact of agentic AI.
3. The evidence (predating the war above) of a mid-cycle acceleration in US economic and earnings growth.

Let’s look at each in turn.

The war: How long will it last?

Despite the multiplicity of effects listed above, you could be forgiven for thinking that we are in a single variable market. When it comes to the direction of daily financial market moves in early March, the state of the US/Israel versus Iran war, and its impact on oil prices, seems to be the sole influence.

The reasons for the US (with Israel) initiating the war aren’t entirely clear but include:

1. Stopping Iran from developing nuclear weapons.
2. Destroying Iran’s ballistic missiles and military capabilities.
3. Getting ahead of an imminent threat from Iran.
4. The US being forced to join Israel in the first strikes so they didn’t suffer greater retaliatory casualties; and
5. To replace the current Iranian regime.

Without a clear rationale, however, it’s hard to understand where the finish line might be and whether the war will be over in days, weeks, months or even longer (Iraq/Afghanistan anyone?).

The most obvious financial market impact of the war has been the stratospheric rise in the oil price after the Iran-controlled Strait of Hormuz was effectively shut down.

Some 20 million barrels a day of crude oil flow through the Strait each day – or about 20% of total daily global oil consumption. That’s one important choke point!

That disruption caused the oil price (WTI) to shoot up intraday on the 9^th of March to just shy of USD$120 a barrel. From the start of the year, the oil price has more than doubled.

If we use closing day prices, at writing, the oil price jump is almost equal to the post-1980 record rise seen in the first Gulf War in 1990.

In uncharted (oil) territory

While the first Gulf War may take the record (so far) for the largest percentage jump in the oil price since 1980, today’s war has seen the fastest – one week in early March recorded the biggest weekly jump in the oil price ever!

Source: Ophir, Bloomberg.

Just how dangerous is this situation?

Here are the three things that stand out to us from past oil spikes caused by geopolitical events:

1. The pattern is pretty consistent. Across six major geopolitical shocks – from the Iran-Iraq War in 1980 to Russia’s invasion of Ukraine in 2022 – oil prices often spike hard and fast … they then give the gains almost all back.
2. The current Iran shock is one of the most violent early moves we’ve seen. A near 60% spike in a few trading days puts the US & Israel conflict firmly near the top of the pack for speed and magnitude of the initial oil price reaction. Dramatic? Yes. Unusual? Only if it continues on from here.
3. The median tells us what to expect from here. Oil prices historically fell back to pre-shock levels in approximately 4-5 months. In the chart below, if history rhymes, the spike is largely done.

Source: Bloomberg. Ophir.

So while investors are worried about a prolonged disruption, history suggests that disruptions are temporary.

The most important factor is not how high oil prices go, but for how LONG they stay high.

The question we are asking ourselves now is: Is Iranian supply actually off the market this time? Or is the oil price spike just a fear premium?

If fears around the impact of the war on Iran’s oil supply are just that, fears, then we can use the median pathway of 4-5 months for prices to fall back to pre-shock levels as our roadmap.

We think US President Donald Trump will ultimately be persuaded to back down from the war if that is the only means to sustainably get the oil price lower.

Trump is facing a very important mid-term election this year and he won’t want to be adding cost pressures to consumers at the petrol pump or through rate hikes to combat oil price-induced higher inflation.

The playbook from past shocks such as this suggests they tend to see short-term, mean-reverting oil price spikes, which creates short-term negatives for equities, but then equities tend to bounce back over the next 3-6 months.

Unless the Trump Administration wants to perform a coup de grâce on its domestic economy, we suspect it will avert the worst-case outcomes on the oil and share markets.

And it seems the market agrees. Futures markets at present have the oil price (WTI) back down below USD$70 a barrel by the end of this year and dropping rapidly over the next few months.

The ‘Death of Software’ was greatly exaggerated (maybe)

OpenAI launched ChatGPT to the public on the 30^th November 2022. The launch triggered an incredible run for the Mag7, US large-cap growth stocks and the US share market in general.

2023, 2024 and 2025 saw the S&P500 put on 24.2%, 23.3% and 16.4%, respectively, each of those years.

When it comes to three-year market streaks in the U.S. since 1928, the run from 2023 sits well within the top decile (top 10). As Sinatra might say, “It was a very good year(s)”.

Source: Bloomberg, Datastream, Goldman Sachs Investment Research.

But for the last five months or so, the S&P 500 has been largely treading water between the 6500 and 7000 levels.

The waters have been pretty calm of late if you were an index investor.

Like a duck on a pond

But like the proverbial duck on a pond, beneath the surface, the legs have been whirling. In the chart below, you can see the volatility of individual stocks within the S&P 500 index minus the volatility of the index itself.

Source: Goldman Sachs

And market leadership has been undergoing some momentous pivots.

Basically, the car (index) isn’t going anywhere lately, but the passengers (companies in the index) keep swapping around all the time and trying to fight for who is going to drive the car (index) forward.

While it was clear who was driving from when ChatGPT was launched at the back end of 2022 until about three months ago (the Mag7), that has become less clear recently.

Strong commodity and oil prices have seen energy and materials stocks jump into the driver’s seat to dominate.

At the same time, IT stocks, and software companies particularly, have been on a rollercoaster ride as AI has moved from the much less valuable ‘telling you stuff’ (ChatGPT) period, into the much more valuable ‘doing stuff’ for you (AI agents) phase.

This new phase, caused by the emergence of powerful new AI agents, has seen ‘doomer’ narratives emerge, suggesting that we will imminently see one person in a garage ‘vibe coding’ to create a whole leading enterprise software solution that will drive leading software businesses into bankruptcy and put everyone out of work.

As you know, those fears triggered a huge sell-off in SaaS stocks (The SaaSpocalypse) that had widened during the first three weeks of February.

Fortunately, leading voices such as Jensen Huang, founder of the world’s most valuable company, Nvidia, have provided some credible pushback against these most extreme narratives, and we’ve seen a reprieve bounce in software names since the last week of February.

We unpack the SaaSpocalypse in much more detail in this month’s Investment Strategy Note where we push back against the most extreme ‘doomer’ narratives.

A Deep Breadth – at last

What does the changing underlying structure of the market and leadership mean for our space and the recent outperformance of small-cap stocks?

In our last couple of Letters (here & here), we highlighted how breadth had been returning to global equity markets, particularly the US share market. For the first time in years, small-cap stocks have outperformed large caps more durably.

This has happened because the lagged impact of Federal Reserve rate cuts, along with household and business tax cuts in the US, broadened economic and corporate earnings growth, diminishing the reliance on Mag7-related AI capital expenditure.

There are macro indicators we are watching that are giving us confidence that this broadening has durability.

First one caveat. The following presumes that the global oil supply issues caused by the Iran war will be resolved soon. As we highlighted, there is a good reason to expect this to occur, but it’s not written in stone.

Market breadth – and the outperformance of small caps – is intimately tied with the business cycle, which moves in years, not days or weeks, and follows a typical pattern:

• They start with lower inflation and/or softer labour market data.
• That’s followed by central banks lowering interest rates. (This is exactly what happened from 2023 through to today in the US.)
• Early business cycle data, such as mortgage applications, then start to improve.
• Then comes improving business activity (purchasing manager indices – PMIs).
• Followed by improving and broadening corporate earnings expectations.

The chart below illustrates the Institute of Supply Management’s (ISM) PMI of New Manufacturing Orders in dark blue and the breadth of S&P 500 company earnings revisions.

Source: Piper Sandler

As you can see, they move together in nice broad cycles lasting years and after a few years of both moving sideways.

They have recently both started trending upwards.

That same measure of PMI New Orders (now in orange below) also correlates quite nicely with the percentage of stocks in the US share market whose prices are trading above their 200-day moving average. (The more stocks trading above the moving average, the greater the market’s breadth.)

Source: Piper Sandler

In other words, as business activity picks up, so too does the number/breadth of stocks that are performing well.

Unless the current business cycle is knocked off course by an exogenous event (like a protracted war causing long last oil price disruption!), we can expect the trends that go along with it. That is, we can expect to see a continuation of broader equity market participation, with more stocks outperforming, including, importantly for Ophir and our investors, small-cap outperformance.

Should the oil price settle back towards its pre-war level in the near term, we expect equity markets to “go back to regular programming” that was in place early this year: increased breadth and with a tailwind behind the backs of small caps.

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SaaS versus Semis

For this month’s Stock in Focus, we’re doing something a little different.

Rather than spotlighting a single company (though we will highlight one), we’re zooming out to explore a significant rotation: The growing dispersion between software and semiconductors, particularly within the broader AI thematic.

Both groups sit under the ‘tech’ umbrella, but their near-term investor narratives couldn’t be more different.

Put simply:

• The application layer (SaaS) is being severely punished for uncertainty around the durability of its business models in an AI world.
• The picks and shovels (semis, AI Infrastructure) are being rewarded for their growth potential and the earnings certainty that AI investment is creating for them.

This dispersion is throwing up big opportunities for Ophir in both application companies and semis, but we are mindful of managing downside risks as debates about the impact of AI continue to play out.

Source: Ophir. Bloomberg.

The Software Shakeout: Zero-Seat Threat

The woes of the software sector started as a slow bleed in the second half of 2025 when it became clear AI investment would skew heavily toward infrastructure, rather than application-layer enhancements. Investors began recalibrating growth expectations for software businesses.

But then the software sector was rocked on January 12 when Anthropic released its Claude Cowork preview. It showcased autonomous agents that could perform complex workflows with minimal human input.

This wasn’t just another chatbot. It highlighted that entire seat-based workflows (licensing models based on the number of users) could be replaced.

For the past decade, enterprise SaaS companies have grown alongside corporate headcount. Products were priced ‘per seat’, and forward multiples assumed that more humans meant more licences.

But if AI agents can perform a week’s worth of work in a day, the unit of value in software – the human seat – comes under serious structural pressure.

This is the Zero-Seat Threat.

While big-cap incumbents like Salesforce (CRM) and Adobe (ADBE) have launched AI initiatives (Agentforce, Firefly) to defend their moats, these have yet to translate into a tangible revenue uplift, and investors fear that incumbents are simply running to stand still.

When long-duration stocks lose revenue predictability, multiples compress quickly. Morgan Stanley’s SaaS index forward earnings expectations are now trading on ~15x, compared to a 30-40x range since mid-2022.

Source: Ophir. Bloomberg.

The software sector is now showing its weakest technical breadth since 2018. The S&P North American Software Index recently hit it’s most oversold level ever based on its 14-day RSI (relative strength index) – even more than in the tech wreck of 2001!

Source: Ophir. Bloomberg. U.S. Software Index refers to S&P North American Technology Software Index (SPGSTISO).

Given the quantum and indiscriminate nature of the price moves in the sector, we expect there to be opportunities to invest in companies that have been oversold.

However, we are mindful that as uncertainty persists and the debate around future earnings continues, it will be difficult for many software names to see their multiples re-rate.

Meanwhile in Semis: Earnings Visibility is the New Growth

While software stumbles, semiconductors are going from strength to strength.

Semis are benefiting from both a cyclical rebound and structural AI demand.

It began, of course, with Nvidia, the poster child of the AI build-out, but it’s now expanded into the broader infrastructure stack.

The major driver is huge AI capex.

Microsoft, Amazon, Alphabet, and Meta have all locked into multi-year AI capex plans, committing hundreds of billions each toward training clusters (specialised supercomputers to build large language models) and inference capacity (infrastructure to run AI for users).

In their recent results, all of these companies provided capex guidance for 2026 that was well above market expectations.

This obviously creates surging demand for chips and chip-making infrastructure.

Source: Ophir & Company Reports. Figures in $USD.

Semis have typically been more cyclical, but massive AI capex has given them what investors love – earnings visibility.

With AI being funded in real time, order books are now full, supply is constrained, and lead times are stretched.

This has shifted the entire sector’s narrative from ‘cyclical’ to ‘critical infrastructure’.

At the same time, semis are benefiting from a broader macro recovery in PCs and smartphones.

And in January there were several key events that added more fuel to the fire:

• At CES (Consumer Electronics Show), Nvidia CEO Jensen Huang called out memory and storage as the next AI frontier.
• Samsung and Micron said the price of memory was increasing 40-50%.
• TSMC came out with really strong capex guidance of ~US$52-56 billion, which was well above market expectations.

As a result, memory and storage names have continued to surge, including (approximate 1-year returns) SanDisk (+1,520%), Seagate (+335%) and Western Digital (+450%).

Silicon Motion Technology Corp (Nasdaq: SIMO)

A key holding for us in the storage space is Silicon Motion (SIMO), which performed strongly in January following CES.

The company is a global leader in the semiconductor industry, specifically acting as the ‘brains’ behind modern storage.

Silicon Motion is a ‘fabless’ company, which means they design the hardware and software but outsource the actual manufacturing to foundries like TSMC.

The company designs NAND flash controllers. A controller is a small processor that manages how data is stored, retrieved, and protected on NAND flash memory (the chips found in SSDs and smartphones).

Silicon Motion’s products are found in:

• Solid State Drives (SSDs): Used in PCs, laptops, and data centers.
• Mobile Storage: eMMC and UFS controllers used in smartphones and IoT devices.
• Specialty Solutions: Industrial-grade and automotive storage (e.g., in-vehicle infotainment and ADAS).

Source: Ophir. Bloomberg.

Managing Exposure Across the Stack

So how is Ophir playing this dynamic?

From our seat, this isn’t just about picking winners amidst an ever-shifting debate and material share price movements.

It’s about managing risk and not doubling down when stocks could de-rate further.

We believe in application-layer AI, but the market will take time to separate the winners and the survivors from the losers and the disrupted.

And while we remain exposed to some AI infra winners, we’re conscious that ‘earnings certainty’ trades rarely last forever as the market eventually overcapitalises future earnings and pays too high of a multiple.

While we will selectively invest in SaaS names that have cash flow support and have catalysts to reduce uncertainty, we won’t be relying on a recovery in software or a continuation of semi strength to drive future performance.

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The Great Currency Hedging Debate

In this Letter to Investors, we look at:

• The record small cap outperformance run in January, and why we think the small cap renaissance will be sustained.
• What is causing the big changes in market leadership, including the ongoing surge in gold and silver.
• Why traditional software companies remain on our radar despite the recent fear-driven indiscriminate selling across the sector.
• Whether, in light of the Aussie dollar ripping in January, investors should hedge their currency exposure to our global funds?

After ho-hum headline index returns of 1.4% for the S&P 500 and 1.8% for the ASX 200 in January, you might be thinking that not much happened to start 2026.

You’d be dead wrong!

Under the surface, there was a lot going on, and we want to touch on four key developments in this month’s Letter:

1. Record small cap run

The first is that investors had small caps front of mind.

While the S&P 500 was +1.4% in January, over in small cap land, the Russell 2000 was up 5.4%.

Global small caps (MSCI World Small Cap Index) outperformed global large caps (MSCI World Large Cap Index) for 16 consecutive trading days – the longest streak in the 30-year history of the data!

Source: Bloomberg. Global Small Caps is represented by the MSCI World Small Cap Index and Global Large Caps is represented by the MSCI World Large Cap Index.

As we’ve been saying for some time now, valuations, including relative valuations, are like an elastic band, and they can snap back fast.

Global small caps have been trading at the cheapest valuation to global large caps in 25 years.

Last month, we covered how we think the catalyst for this snap back for outperformance to start was Small Caps earnings expectations outperforming like they have been in recent months (link).

This broadening in earnings growth, particularly outside of the Magnificent 7 in the U.S., is happening as the U.S. economy looks to be in the early days of a mid-cycle acceleration.

At the time of writing in early February, another key leading economic indicator helps to confirm this with the Manufacturing Purchasing Managers Index (a key cyclical real-time barometer of the U.S. economy) seeing the biggest monthly gain since we were all released from COVID lockdowns in 2020.

This is important because it gives us confidence the small cap snap-back is not another short-term ‘head fake’; but rather a more durable broadening in economic and earnings growth that includes small cap land.

2. Gold glitters

You must have been hiding under a non-shiny rock to not hear about what’s been happening recently to the price of shiny metals – gold and silver.

In January, gold was up 13.3% and silver rose 18.9%. This was after they rose 64.6% and 148.0% respectively in 2025.

Move over share investing!

It could have been even better. Gold and Silver were up over 25% and 60% each at one point during January (!) before President Trump announced the new Federal Reserve Chair would be Kevin Warsh.

Markets view Warsh as a more hawkish choice for interest rates than his main competitors. In response, the U.S. dollar and bond yields rose in late January, which reduced the appeal of precious metals as a hedge against worries that too low interest rates would stoke inflation fears and dollar debasement.

All in all, still a great month for gold, and a bad one for any boyfriend planning on buying their partner jewellery.

This fed into a cracking month for the materials sector, which rose 9.5% in Australia (ASX 200) and 8.6% in the U.S. (S&P 500).

Materials was only pipped by the Energy sector, which rose 10.6% in Australia and 14.4% in the US after the oil price (WTI) surged 14% in January off the back of Iran conflict supply concerns and Winter Storm Fern in the U.S. disrupting production.

3. Software sinks

On the flip side, the IT sector globally and software businesses in particular have faced a bloodbath.

It started at the back end of 2025 and has picked up steam this year.

Domestically in Australia, the IT sector was down -9.4% in January, while it fell a much more modest -1.7% in the U.S.

This understates the carnage in the U.S., though, where the S&P 500 Software Index was down -13.1% on the month, nearly twice the fall of the next worst industry group.

What caused it?

Well, it’s a murderer’s row of suspects, including:

• Claude’s new AI release
• ChatGPT
• Agentic coding
• Fear of what’s to come from Elon Musk’s ‘Macrohard’ – which started as a joke on Microsoft’s name.

But broadly, investors have become petrified at how easy it might be for AI to replicate and improve on traditional software businesses, particularly those operating what was previously thought of as stable Software-as-a-Service models (delivering applications on the internet usually via subscriptions).

The victim list so far is a roll call of some of Australia’s best-known tech names, like Xero, TechnologyOne, WiseTech, Catapult Sports, Pro Medicus and Life360.

In the U.S., it includes names like Atlassian, Docusign, ServiceNow, Salesforce, Palantir and Adobe – all those names are down -20% or more so far this year, at time of writing.

The sell-off has been indiscriminate, with high-quality stocks tossed out with the low quality, and those with likely big moats against AI disruption getting carted with the rest.

It’s interesting, because if history tells us anything with the internet, it’s that the software application layer of the internet made all the money – think Google, Meta, Amazon, WhatsApp, etc.

But with AI, there are essentially five layers:

1. Energy needs: Including companies like Constellation Energy that power data centres.
2. Chips needs: NVIDIA is the clear standout here in the semiconductor design and manufacturing space.
3. Memory/storage needs: Mostly in the cloud, in data centres with winners like Microsoft Azure, Amazon Web Services, Coreweave and NextDC.
4. Large Language Models: Like Claude, ChatGPT, Gemini and Grok, which are the most visible winners so far.
5. Application software layer: This is also where some hardware like robotics sits as investors debate what form factor the software will be delivered in – e.g. desktop/mobile/glasses/robot, etc.

There will no doubt be new AI-enabled application software companies that we don’t know yet, or haven’t been established, that will likely be big winners and household names in 5-10 years.

But to assume all of today’s traditional software companies are going to be losers and not be able to successfully integrate and leverage AI seems very shortsighted.

It really is an environment of ‘shoot first, ask questions later’ at the moment. So important is this topic that we’ve written this month’s entire Strategy Note about it, which we encourage you to read (link).

For now, the Materials, and particularly commodities outperformance, as well as software underperformance, have created headwinds for our style of investing and performance.

At the margin, we are typically structurally underweight Materials (which is a more cyclical/value sector) and overweight IT (which has more high-quality growth style companies). Andrew covers this in this month’s video update (link).

Importantly, though, it’s clear some of these traditional software businesses today that are able to harness the benefits of AI to increase their moats, along, of course, with new AI-related start-ups, will be some of the best performing in the years ahead, and they remain firmly in our investment ‘hitting zone’, which keeps us incredibly excited.

4. Big currency movements

Finally, anyone in Australia who has been booking their U.S. holiday trip at the moment will likely have been licking their lips.

In January, the Australian dollar rocketed above US$0.70 for the first time in a few years and is well above the sub-US$0.60 level it reached at one point last year.

Source: Bloomberg. Ophir.

While this is great for holiday makers to the U.S., it is a headwind to the performance for the Australian-dollar returns of the unhedged classes of our global small/mid-cap Funds, the Global Opportunities Fund and Global High Conviction Fund.

We do have a 100% currency hedged class of the Global Opportunities Fund available though (Class H), and it protected against the appreciation in the Australian dollar in January relative to all the major currencies in which we invest, including the U.S. dollar, Euro, British Pound and Japanese Yen.

Why did the Australian dollar increase against so many foreign currencies? Will it keep happening? And should you hedge it?

Given the U.S. dollar represents 60-70% of our currency exposure in the Global Funds, we’ll keep our focus here.

There have been two key factors pushing down on the U.S. dollar lately:

1. The Fed is expected to cut rates by more than any other major central bank (some central banks including in Australia and Japan are actually hiking.) That makes U.S. interest rate yields less attractive to foreign investors and therefore reduces demand for U.S. dollars.
2. With U.S. exceptionalism fading and risk sentiment improving as global growth improves, capital flows are shifting to more ‘risk on’ countries, including Australia.

Will this trend of an appreciating Australian dollar continue in the near term?

Sadly, the answer, if we are being honest, is that no one really knows with any high degree of confidence. (The RBA itself simply forecasts no change in its projections.)

Since 1983, when the AUD began freely floating against USD, it has averaged almost bang on US$0.75. Where we are today is pretty close to that average.

With official rates likely still pointing higher in Australia and lower in the US this year, as well as evidence of acceleration in growth helping to support commodity prices, there may be a little upside still to the Australian dollar.

That said we are pretty close to that long-term average and short-term forecasting of the currency is perhaps the most difficult of all asset prices.

Fortunately, in the longer term, it tends not to matter that much whether you are hedged or unhedged for currency movement in your exposure to overseas equities.

You can see this below, where the difference in annual returns between hedged and unhedged U.S. equity returns, from the perspective of an Australian investor, can be big – often in the 10%-30% range.

But when you get out to 10- and 20-year rolling periods, the difference is quite small (often 0-3% p.a.).

Source: Bloomberg. S&P 500 Index used for U.S. Equity returns and AUD/USD exchange rate used to compute unhedged returns.

There is one key benefit, though, of the unhedged Global Opportunities Fund classes: foreign currencies, and most notably the U.S. dollar, are negatively correlated with global share markets.

When share markets sell off, like in March 2020 after COVID first broke out, the U.S. dollar tends to rise, and the Australian dollar fell, offsetting the decline in an Australian investor’s exposure to the U.S. equity market.

For example, the currency-hedged maximum drawdown of the S&P 500 in March 2020 was -33.9% while the unhedged number was -24.3% as the Australian dollar fell from US$0.67 to around US$0.57.

That is why, long-term, most Australian investors have larger allocations in unhedged global equities than funds that provide currency hedging.

At the end of the day, the choice is yours! We’ll just be working our butts off, aiming for the underlying companies we invest in to provide great returns for you.

As always, if you’d like to chat to us about any of the Funds, please feel free to call us on (02) 8188 0397 or email us at ophir@ophiram.com.

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 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.

The missing ingredient for small cap outperformance is here.

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The 2025 narrative rollercoaster

With Trump 2.0 at the helm of the world’s largest economy, many investors expected 2025 to be a wild ride and boy, it certainly did not disappoint.

Shifting investor narratives were enough to cause whiplash, turning the morning headline check here in Australia into a real rollercoaster.

Consider just some of the questions that were crammed into a single year:

Is the U.S. headed for a recession?

Does Trump want to tank the U.S. economy to drive rates lower?

Does Trump want to run the economy hot, caring less about returning inflation to target?

Are we in a market bubble? Or maybe just an AI bubble?

Will the Fed Chair be fired, or will the Fed lose its independence?

How high will U.S. tariffs go, and what will that mean for growth and inflation?

Is rising U.S. imperialism hurting its investability?

Is World War III about to start?!

Are all our jobs going to be replaced by AI?

Despite all that, including a -19% drawdown in April after Trump’s Liberation Day tariff announcements, the S&P 500 put on a very healthy +16.4% in 2025. This followed gains of +23.3% and +24.2% gains in 2024 and 2023. It has been a very good few years for global share market investors, particularly those exposed to U.S. large caps, more specifically, mega cap tech companies.

New year, same winners

Perhaps the most surprising thing is that, despite the macro and political volatility dominating headlines, you were better off throwing your crystal ball in the bin at the start of 2025 and simply sticking with what had worked in 2024 and 2023.

As shown below, U.S. large caps again outperformed mid and small caps, while growth orientated stocks outperformed value.

On a sector basis, the winners were once again familiar, with Technology (think Nvidia, Apple, Microsoft) and Communication Services (think Google & Meta) coming out on top.

Source: Piper Sandler, Ophir.

BUT, we do not see 2026 as a “Connect 4” year where the same large cap growth playbook delivers a fourth consecutive year of outperformance. We unpack why a little later.

First though, despite U.S. and global small caps underperforming large caps again in 2025, we want to highlight what drove the larger than normal outperformance across our global funds.

2025 Ophir performance highlights

Enter the multi-factor performance attribution we have been sharing with investors over the last few years. In 2025, our Global Opportunities Fund returned +27.1% before fees (+25.6% after fees) compared with its benchmark, the MSCI World SMID Cap Net Return Index (in AUD) which returned +9.9%.

Global Opportunities Fund: Multi Factor Attribution

Source: Ophir, Bloomberg, Citi. Past performance is not a reliable indicator of future performance.

Crucially, this outperformance was not driven by tailwinds from industry or country skews, nor by a bias towards small companies relative to the benchmark. In fact, all of the typical factors or characteristics monitored by our performance attribution software detracted from returns in aggregate.

Instead, “Selection Effect” or stock-picking, accounted for more than 100% of the outperformance, contributing +30.6% of the +17.2% excess return.

As regular readers will know, this is great news.

It confirms that our bottom-up due diligence is doing the heavy lifting, rather than returns being boosted by unintended factor exposures or “free kicks”.

Another stand out feature of the Global Opportunities Fund’s performance in 2025 was how it behaved in both rising and falling markets.

While the return profile remained consistent with our long term style, it was even better than usual.

As shown below, since inception “S.I” (October 2018), in months when the benchmark has risen, the fund has delivered, on average, around 140% of the benchmark’s return.

For example, if the benchmark rose by +1.0% in a month, the fund rose by around +1.4% on average. This highlights our tendency to outperform in rising markets.

Global Opportunities Fund: Outperforming in up markets & protecting capital in down markets

Source: Ophir, Citi. Past performance is not a reliable indicator of future performance.

On the flip side, in months when the market has fallen, the fund was down only around 95% of the benchmark on average.

Or for example, if the benchmark fell -1% in a month, we fall around -0.95% on average. This means, on average, we fall less in down markets.

The key takeaway here is that we generally outperform by more in up markets than we tend to outperform in down markets, while still delivering outperformance across both environments. This characteristic is shared across all Ophir funds.

In 2025, this profile was even more favourable. The Global Opportunities Fund captured almost 180% of the upside, well above the long term average of 140%. On the downside, it fell only 73% of the market on average, compared with the long term average of 95%.

The result was a smoother and more attractive experience for investors over the year, something we continually seek to improve.

And finally, on the topic of investor experience, we want to highlight progress in an important statistic called “Tracking Error“, a statistic closely watched by sophisticated institutional allocators, such as large superannuation and pension funds, which has almost halved over recent years – a great thing!

What is tracking error? Put simply, it measures the volatility of a fund’s monthly outperformance or underperformance relative to its benchmark.

For example, in December the Global Opportunities Fund (Class A) returned +1.6% compared with a benchmark return of -0.8%, meaning an outperformance of +2.4%. Tracking error measures how consistent or variable those monthly relative returns are over time [1].

Clearly investors want outperformance, but they also want that outperformance to be delivered consistently. More stable relative returns are generally viewed as more reliable than returns driven by a small number of exceptional months.

Looking at the rolling one-year returns for the Global Opportunities Fund, the volatility of relative performance (1 year tracking error) has fallen sharply to around 6 to 7% per annum, compared with around 12% per annum in the early years of the fund.

Importantly, this improvement has not come at the expense of returns.

Over the past three years, the fund has outperformed its benchmark by +10.9% per annum after fees, delivering +26.0% per annum versus +15.1% per annum. Since inception in 2018, outperformance has averaged +9.4% per annum after fees, with returns of +18.5% per annum versus the benchmark’s +9.1% per annum.

More outperformance, delivered more smoothly. That’s something every investor wants.

Global Opportunities Fund: Volatility of out/underperformance almost halved

Source: Ophir, Citi. Past performance is not a reliable indicator of future performance.

The Missing Ingredient: Earnings

There is no shortage of geopolitical risks for investors to digest, from ICE raids in Minnesota, to the toppling of a dictator in Venezuela, and the prospect of military action involving Iran and Greenland, to name just a few.

From an economic perspective, however, particularly in the U.S. as the world’s primary growth engine, there are several positives supporting ongoing equity market strength:

• The lagged effect of Fed interest rate cuts with the potential for more to come;
• Falling oil prices which effectively act as a tax cut for consumers;
• Large tax refunds flowing to U.S. households, alongside accelerated depreciation for capex and R&D expenditure under Trump’s One Big Beautiful Bill;
• Ongoing deregulation, with the likelihood of further stimulus and affordability measures ahead of the U.S. mid term elections in November.

Together, these factors have recently driven outperformance in more cyclical areas of the U.S. share market, such as transport, housing and manufacturing, helping broaden market participation beyond a narrow group of stocks.

Since the rates induced sell-off in equity markets in late 2021, small caps, one of the more cyclical and risk sensitive segments of the market, have underperformed.

This is illustrated in the chart below, where the red line shows the Russell 2000 (U.S. small caps) divided by the S&P 500 (U.S. large caps). It’s been heading south for a LONG time which highlights prolonged small cap underperformance relative to large caps.

While there have been brief rallies lasting days or weeks linked to hopes for lower inflation or interest rates, these moves have not been sustained.

What has been missing is the key catalyst investors expect lower rates to deliver: earnings growth. The gold line in the chart shows small cap earnings expectations relative to large caps over the next twelve months.

Source: Bloomberg. Indices indexed to 100.

As with individual stocks, earnings are the primary long term driver of index performance. From 2022 through to mid 2025, small cap underperformance closely mirrored their relative earnings underperformance.

There is now compelling evidence that this is changing.

When combined with improving momentum in early cycle sectors, a supportive economic backdrop and broader market participation, this emerging earnings outperformance represents the final ingredient needed to support sustained small cap outperformance.

It has been a long wait, but as small cap specialists, we believe this shift sets up a favourable tailwind for the asset class in 2026 and beyond, and ultimately for the Ophir funds.

[1] Technically tracking error is calculated as the standard deviation (volatility) of monthly out or underperformance.

As always, if you’d like to chat to us about any of the Funds, please feel free to call us on (02) 8188 0397 or email us at ophir@ophiram.com.

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.