Category: Letter to Investors

The missing ingredient for small cap outperformance is here.

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

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.

16 Dec, 2025 Stock in Focus - Zeta Global (NYSE: ZETA)

11 Feb, 2026 Letter to Investors - January 2026

16 Dec, 2025

Letter to Investors - November 2025

Letter to Investors • 11 mins read

Investing in the share market: Go all-in or stage your entry?

In this Letter to Investors we look at

The importance of ‘factors’ in driving short-term market moves.
How a radical reshaping of interest rate cuts in November led certain factors, particularly growth, to underperform during the month.
How these factor dynamics temporarily affected our Ophir Funds performance in November, and how they’re now unwinding … assisting with outperformance in our Global Funds at writing in December.
We also look at the vital topic of whether to invest your money all at once in the market (lump sum) or in staged investments (staged market entry) over time.
As part of our analysis, we look at which strategy – lump sum or staged – has outperformed over the last 50 years.
And we then factor in risk/volatility and examine how staged investing is really like an insurance policy.

Last month, a very well-known Australian businessman said he wanted to invest in one of our share Funds.

But then he asked us: “Should I invest all at once, or stage it in over time?”

A great question – and one every investor faces.

And in this month’s Letter to Investors, we want to share our answer.

But first, we’d like to touch on November’s performance. All of our Funds underperformed during the month. But we are not concerned.

Why?

Factor facts

While earnings drive share prices over the long term, so-called factor headwinds or tailwinds can sway performance in the short term.

What are these factors?

There are an almost unlimited number of ‘factors’ professionals track these days. But essentially, they are various characteristics shared by certain groups of shares, including:

The size of the company (small caps, mid-caps, etc)
How liquid its shares are
How fast their earnings are growing
The stock’s valuation (cheap, etc.)

Professional investors often crowd in and out of these ‘factors’ at different times based on when they think the macroeconomic or market environment is going to suit a particular factor.

A radical move

November was one of these months where we saw big factor moves.

The precipitation factor? (pardon the pun).

The U.S. Federal Reserve.

Heading into the end of October, markets thought the Fed was a sure thing to cut rates at its next meeting in December.

But then Chair Powell poured cold water on that idea at his post-meeting press conference on October 29.

As a result, over the first three weeks of November, the market switched to expecting a higher-for-longer interest rate environment.

The probability of a December rate cut crashed from 100% to about 30%.

For those who don’t track market pricing for these probabilities, for such a brief period, this is a radical move.

Probability of Rate Cuts

Source: Bloomberg for FOMC meeting at 10th December 2025. Data as of 30 November 2025.

Growth hit

The new higher-for-longer expected rate environment triggered winners and losers amongst various factors:

Growth, liquidity and beta underperformed.
Low volatility and lower valuation stocks outperformed. (The chart below shows factor moves for U.S. small caps in November.)

Higher interest rates, particularly if unexpected, impact the valuations of growth-orientated stocks more as they have more of their lifetime cash flows further out in the future, and when you discount those future cash flows with a higher interest rate to determine their valuation today, that results in a bigger valuation drop.

U.S. factor headwinds in November

Source: Bloomberg for the Russell 2000 index long-short factors. Data as of 30 November 2025.

You will get some further idea of the relative factor performance of growth versus value-oriented companies in the U.S. in November in the microcaps chart below.

While we don’t really fish as low down the market capitalisation spectrum as microcaps, it shows that growth-oriented microcaps underperformed their value counterpart in November by the fourth most of any month in the last 20 years!

One of the largest factor headwinds – Growth vs Value

Source: Bloomberg. Data as of 30 November 2025.

Given the importance of the U.S. Federal Reserve in driving the direction of interest rate policy globally, this growth underperformance compared to value was broad based in the U.S. in November and also impacted the Australian share market.

Sticking with our edge

For Ophir, as a manager seeking to invest in higher-growth businesses (and why wouldn’t you in small caps, as that is where the next 10 or 20 bagger is found), this underperformance of growth naturally created a headwind for our performance in November.

In the last week or so of November, as further Fed Governors came out in support of an end-of-year cut, Fed rate cut probabilities for its December meeting headed back towards 100%. However, that led to only a partial recovery in the underperformance of smaller, less liquid growth businesses.

But now, at the time of writing in December, growth style companies in the U.S are continuing their recovery from the November factor underperformance, and as a result, our Ophir Global Funds have outperformed so far in December.

There will be times where having a growth factor bias will be like running into the wind; other times, it’s like running with a wind at your back.

But, ultimately, companies that consistently grow earnings faster than market expectations will be rewarded, and finding them is where we believe our edge is.

Market Entry – dip your toe or jump in all at once?

Back to this month’s key topic!

You’ve got a lump sum of cash, and you want to start investing in the stock market. You might consider ploughing it all in today. But then you worry: what if the share market then slumps?

Fortunately, there is a wealth of data available that can help investors make better-informed decisions.

Below, for the last 50 years of Australian share market data (ASX 300 index), you can see the average 12-month results for

‘Lump sum’ investing (investing all at once).
‘Staged market entry’ (four equal investments at the start of each quarter over 12 months).

Source: Bloomberg. ASX 300 total return used for Lump Sum option. ASX 300 total return and Bloomberg Ausbond Bank Bill Index returns used for calculating Staged Market Entry return. Bloomberg Ausbond Bank Bill Index return used for Cash return.

On average, lump sum investing wins.

This makes sense because share markets tend to rise over a year. Delaying your investment through staged entry is, therefore, on average, going to hurt you.

And, of course, just sitting in cash earning interest has provided the worst result – though investors today would love to get a 7.1% return from their cash investment![1]

Lump sum risk

BUT, that is not the end of the story.

The world does not live in averages.

As famed investor Howard Marks said: “Never forget the six-foot-tall man who drowned crossing the river that was five feet deep on average”.

If we look at the ‘risk’ to those average annual returns we saw above – or the spread of outcomes around those averages – we see that lump sum investing was the riskiest.

Source: Bloomberg. Data from 1975 to 2025.

You don’t have to be a brainiac to understand why.

The share market return is more volatile than keeping all, or some, of your money earning interest from a cash investment. So going in all at once means you could do either a lot better than the 14% average … or a lot worse.

Naturally, by potentially staging their investment, it’s the ‘lot worse’ outcome investors are thinking of protecting against.

Like an insurance policy

So next up is the really insightful data to help you make your decision.

We have chopped share market returns over a year up into 10 deciles – or in other words, 10 equal baskets from the worst 10% of annual share market returns to the best 10%.

We have then looked at how much more, on average, you’d be better off from staging market entry compared to lump sum investing.

Source: Bloomberg. Data from 1975 to 2025.

What you can see is that:

Staging makes you better off if share market returns are in the lowest return four deciles, or the worst 40% of returns.
However, more often, staging makes you worse off because it underperforms in the best six deciles or best 60% of returns.
There is also a ‘negative skew’ to staging. That is, staging makes you worse off to a greater extent in the best returning share market environments than it makes you better off in the worst returning share markets (i.e. -16.2% versus +10.2%).

The best way to think of staging market entry is like an insurance policy on your house burning down. Most of the time, you won’t need the policy, and it’s costing you money.

However, if your house burns down, or in this case, if you have unfortunate market timing and the share market falls after you’ve just started investing, then staging will have saved you money.

Why not just be a better market timer and only invest in a lump sum when you know the share market is going to go up over the next 12 months?

Sadly, that’s not possible.

Things like an expensive share market, or one that has gone up a lot over the past year, have virtually zero predictive power of what the share market is going to do over the next year.

And the longer you wait in cash for a ‘perfect’ share market opportunity, the likely longer you will have been sitting on the sidelines watching a rising share market go by.

A better-informed decision

So, as we see it, just like whether to purchase insurance for a house that might burn down, each individual needs to make up their own mind as to whether the insurance from staging your market entry – which will likely cost you money on average – is worth it for the peace of mind that it will have saved you money if share market returns turn out poor over the next year.

In our experience, for big, meaningful investments, many people choose to stage.

Ultimately, the choice is yours.

But hopefully, you are a little more informed now to make your decision.

[1] This seemingly high 7.1% average 12-month cash return is so high in large part due to the high interest rate/inflation years in the 80s and early 90s.

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

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.

13 Nov, 2025 Letter to Investors - October 2025

16 Dec, 2025 Stock in Focus - Zeta Global (NYSE: ZETA)

13 Nov, 2025

Letter to Investors - October 2025

Letter to Investors • 12 mins read

In this edition of our Letter to Investors, we look at what it takes to become – and to select – an award-winning fund, including:

Our fantastic win at this year’s Australian Fund Manager Foundation Awards
The vital importance of long-term consistency in becoming a top-performing fund
Why investing in the ‘best-performing’ fund of the year isn’t always a path to riches
Three elements that have contributed to the success of our Ophir Opportunities Fund (including a relentless focus on earnings)
Why we’re so excited about the outlook for our global small cap fund

Pounding the Rock – the Stonecutter’s credo

When nothing seems to help, I go look at a stonecutter hammering away at his rock, perhaps a hundred times without as much as a crack showing in it. Yet at the hundred and first blow it will split in two, and I know it was not that blow that did it, but all that had gone before. – Jacob Riis

The above quote is from The Making of an American, a 1901 book by the Danish American journalist Jacob Riis. It was about the idea that success often comes after long unseen labour.

NBA basketball team the San Antonio Spurs adopted it as a team motto under Hall of Fame and five-time Championship coach Greg Popovich.

It’s one that we love here at Ophir and one we’ll come back to in this month’s Letter.

Ophir awarded best Australian Small Companies Manager 2025

But first, we’d like to share some exciting news – the Ophir team took home a major win last month at the Australian Fund Manager Foundation Awards, where we were named Best Australian Small Companies Manager for 2025.

This is our favourite industry event for two reasons:

It’s voted by a committee of industry peers. It’s not a ‘pay to play’ awards night like some others, where you have to pay to be considered. Bias-free is the best!
It raises funds for community-based charities. This year the awards supported Odyssey House NSW and the Sydney Children’s Hospital Foundation.

As Andrew mentioned on the night, the award reflects a huge team effort – and it’s only possible thanks to the tremendous support and faith of our investors who trust us with some of their life savings.

This marks the first time our Aussie small-cap fund, the Ophir Opportunities Fund, has picked up the prize.

We’re extremely proud of its long-term performance. Initial investors have now made 18x their investment with the Fund clocking up +24.5% per annum after fees.

By comparison, the benchmark ASX Small Ordinaries Accumulation Index has returned 2.6x its initial investment, or +7.6% per annum.

That outperformance puts it well ahead of every other Australian equity fund launched since 2012 – as the chart below shows – when Ophir and the Opportunities Fund began.

How many years at the top?

You might look at the chart below and think, surely there are many years where you’ve had the top performing Australian Small Cap fund.

The reality? Just one – 2015.

Below is the ranking (according to Morningstar) of the Ophir Opportunities Fund out of all the Aussie small-cap funds each year, followed by the number of funds operating:

Year to date 2025: 5/211

2024: 2/207

2023: 26/192

2022: 58/184

2021: 42/173

2020: 39/160

2019: 10/146

2018: 94/140

2017: 2/123

2016: 109/118

2015: 1/107

2014: 19/103

2013: 3/99

2012 (from Aug): 2/98

What stands out?

First, there are a LOT of Australian Small Cap Funds! In fact, there are only 200 Australian small-cap stocks, so we now have more managers than stocks!

And while we’ve had strong results recently in 2024 and so far in 2025, we haven’t been at the very top every year.

Another way to look at our long-term consistency is through that familiar Year 10 maths favourite — the box and whisker chart.

In it, the ‘box’ shows the middle 50% of small-cap fund results, while the ‘whiskers’ stretch up to the best performers and down to the worst.

Box & Whisker Chart

Below, the Ophir Opportunities Fund’s returns are shown with the green “X’s” compared to all the other Aussie small-cap funds that were in operation each year.

Calendar Year Returns Aus Mid/ Small Peers

Source: Morningstar Australian Mid/Small Caps (Blend, Value, Growth).

Note: CY12 is August 2012 to December 2012. YTD25 is January 2025 to October 2025.

Four Lessons Learnt

So, what are the lessons for us and investors in general:

You don’t need to be the best in any given year or even in many given years, to generate great returns over the long term. Being consistently good or very good is enough. We were near the top in a few years… with even a few positive outlier years.
When we reviewed the names and holdings of some of the top funds in any given year, they often tend to have a ‘factor’ or ‘sector’ bias, and that bias gets over-rewarded that year – shooting the fund to the top and outperforming the true stock pickers. Be wary of those funds. Those biases often reverse. Today’s hero can quickly become tomorrow’s villain if it’s not backed up by a sound and repeatable investment process with an ‘edge’ on the market. Often the top-performing manager in a given year will have a big skew towards (for example) things like lithium, gold, AI, a high-beta levered balance sheet in a risk-on environment, etc, only to see performance suffer when that bias falls out of favour.
Likewise, be wary of thinking reports in your favourite business newspaper about “this year’s best performing fund” offer a path to riches by investing with them. Far too many have poor performance in the years prior due to some factor that is out of favour. Their performance then pops when the factor mean reverts and they make the press – but you won’t read that in the article. “One of this year’s top performing managers has had a ripping year, after falling for each of the previous three years!”. At Ophir, we know our performance comes from stock picking not some big bias. That’s why it has been sustainable.
It sounds trite, but avoiding horrible years is also important to long-term success. If you fall -50% you have to make a +100% return just to break even. 2016 was clearly a poor year of returns for us with the fund. You just can’t have too many of them… and fortunately, we haven’t. Every fund will have them, even the long-term top performing ones. Share prices don’t always follow a company’s business success in the short run.

Three Elements of Success

Reflecting on our award-winning year for our Ophir Opportunities Fund, what would we put our success down to? Three things stand out:

Limited Capacity

If you have good performance, you can’t keep taking in money forever and a day. In funds management, size kills – especially in small caps. Take in too much money and you either have to:

Invest in larger companies. But they have more eyeballs on them, so it’s harder to get an edge on the market. We felt for Warren Buffett (but not too much!) for much of the latter part of his career having to manage hundreds of billions of dollars that could only be invested in the largest and most picked-over companies in the world. We are not foolish enough to believe we could find an edge investing in those businesses.
Own bigger stakes in the same-size companies. But that sees you incurring market impact costs to enter or exit. It also takes ages to get into or out of the positions, so you lose your ability to be nimble if your view changes quickly.
Own many more companies. But that dilutes your edge and outperformance potential as stock numbers blow out.

Of course, it could be a combination of all three. The history of funds management is littered with managers who had great initial performance, got too greedy, then saw performance suffer.

Put all your money in your funds

It’s easier said than done, and maybe it’s not for everyone, but we subscribe to the Charlie Munger view: “You show me the incentive and I’ll show you the outcome”.

Or as former NSW Premier Jack Lang said – a quote repeated by former Australian Prime Minister Paul Keating – “In the race of life, always back self-interest, at least you know it’s trying”.

It’s one of the reasons we insist that investment team members who join us only invest in the Ophir Funds – it’s the best way to ensure their complete focus at work.

And, finally, “Pound the Rock”!

We said we’d come back to it. Investing for us is about finding a process that works and trusting that process. There is a lot of noise in financial markets. Share prices don’t always track a company’s short-term success. You can get your analysis right, but you can’t account for all the thousands of different variables impacting a profit result. Some will go against you. That is life.

Even if you do all the work, get an edge on the market, and the profit result is better than the market expects, there is no guarantee the share price will go up in the short term.

As we’ve seen before from painful experience, you might be invested in a ‘consumer discretionary’ sector stock (take JB HiFi as an example), but investors suddenly don’t care about today’s earnings result. Instead, they’re focused on a possible recession around the corner and potentially poor future results. So they use the strong earnings news to exit the company, pushing its price down.

But as investing legend Peter Lynch says “A company’s earnings and stock price are 100% correlated in the long term”.

You’ve just got to keep pounding the rock and focus on getting the earnings result right. Eventually, the rock will crack and the share price – and ultimately the fund performance – will go the way you want.

An Easier Edge

It was fantastic to win an award recently for our original Ophir Opportunities Fund.

But as investors who have caught up with us lately have heard, it’s actually another Ophir fund that is receiving the most of our personal investments: the Ophir Global Opportunities Fund.

Why?

Simply, we think it will outperform the Ophir Opportunities Fund over the next five-plus years.

Global small caps are a lot cheaper than Aussie small caps at present. With one-fund-manager-per-stock in Aussie small caps, it could be slightly easier to get an edge on global small caps these days. Plus its also got some great runs on the board, returned +19.1% p.a. after fees since inception in 2018.

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.

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

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

All Ophir Funds are deemed high risk within their respective Target Market Determination documentation. Ophir does not guarantee the performance of the Funds or return of capital. An investment may achieve a lower than expected return and investors risk losing some or all of their principal investment. Past performance is not a reliable indicator of future performance. Any opinions, forecasts, estimates or projections reflect our judgment at the date of this 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.

13 Nov, 2025 Stock in Focus - Exosens (EXENS: FP)

16 Dec, 2025 Letter to Investors - November 2025

10 Oct, 2025

Letter to Investors - September 2025

Letter to Investors • 11 mins read

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

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

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

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

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

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

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

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

Ophir Fund’s Performance to 30 September 2025:

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

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

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

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

That’s the power of compounding at higher returns.

What’s Driving the Performance?

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

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

Global Opportunities Fund – multi-factor performance attribution

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

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

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

It came from stock picking.

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

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

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

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

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

Quality, Quality, Quality

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

But quality matters too.

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

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

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

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

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

Ophir Global Opportunities Fund Key Metrics:

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

But those measuring quality include:

Standard Deviation

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

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

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

Tracking Error

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

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

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

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

Batting Average

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

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

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

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

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

Upside/Downside Frequency

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

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

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

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

Upside/Downside Participation

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

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

Since inception, the Ophir Global Opportunities Fund has shown:

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

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

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

Celebrating a Great Birthday

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

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

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

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

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

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

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

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

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

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.

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8 Sep, 2025

Letter to Investors - August 2025

Letter to Investors • 13 mins read

Optimism Dies Hard

In this Letter to Investors, we look at:

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

Ophir Fund Performance – August 2025

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

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

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

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

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

*Refers to Class A units.

Welcome to the party, pal!” – John McClane

It’s Christmas Eve 1988 in Los Angeles.

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

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

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

Source: Die Hard (1988).

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

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

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

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

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

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

Small caps to trounce large?

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

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

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

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

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

(Source: Piper Sandler & Co.)

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

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

Four Scenarios

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

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

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

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

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

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

Source: Ophir. Bloomberg.

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

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

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

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

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

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

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

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

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

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

Why?

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

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

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

Source: Piper Sandler

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

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

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

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

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

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

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

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

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

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

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

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

Ring a bell, anyone?

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

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

Source: Piper Sandler

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

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

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

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

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

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

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

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

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

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

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

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

Source: Ophir. Bloomberg

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

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

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

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

An exciting time to be a small-cap investor

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

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

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

The fourth is the worst but least likely.

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

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

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

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

Valuations in our part of the market are attractive.

The team is experienced, stable and locked in.

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

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

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

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

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.

11 Aug, 2025 Letter to Investors - July 2025

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

11 Aug, 2025

Letter to Investors - July 2025

Letter to Investors • 16 mins read

In this Letter to Investors, we explore:

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

Ophir Fund Performance – July 2025

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

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

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

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

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

Mo’ Tariffs, Mo’ Problems?

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

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

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

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

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

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

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

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

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

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

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

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

The first is a weak jobs market.

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

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

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

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

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

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

Bad Jobs Report Increases Expected Rate Cuts:

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

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

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

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

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

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

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

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

Small caps shifting from ‘headwinds’ to ‘tailwinds’

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

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

Bad Breadth – a fresh mint for small caps:

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

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

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

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

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

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

We don’t speak Japanese

So how did our Funds perform in July?

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

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

Global Opportunities Fund Factors in July:

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

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

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

Morningstar Magic

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

Opportunities Fund’s Rankings:

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

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

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

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

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

Stock in Focus: IES Holdings Inc.

An Uncovered Gem

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

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

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

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

It truly is an uncovered gem.

Leaving no stone unturned

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

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

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

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

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

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

Plugged into Growth

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

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

Powerful tailwinds

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

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

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

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

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

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

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

Under the radar

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

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

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

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

Supercharged for Success

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

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

Source: Ophir. Bloomberg.

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

Structural growth
Valuation upside
Balance sheet flexibility

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

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

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

Footnotes-

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

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

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.

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

8 Sep, 2025 Letter to Investors - August 2025

9 Jul, 2025

Letter to Investors - June 2025

Letter to Investors • 12 mins read

Read the PDF

A big FY25 but small cap rate cut benefit still ahead

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

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

June 2025 Ophir Fund Performance

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

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

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

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

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

A Good Year

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

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

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

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

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

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

Ophir Funds – Performance to 30 June 2025

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

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

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

Stock picking rules the day

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

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

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

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

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

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

Protecting the downside and outperforming in up markets

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

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

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

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

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

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

What do we put it down to?

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

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

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

Why?

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

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

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

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

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

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

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

Cuts remain key

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

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

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

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

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

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

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

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

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

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

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

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

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

16 Jun, 2025 Fund Update - Distribution Estimates FY25

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

10 Jun, 2025

Letter to Investors - May 2025

Letter to Investors • 13 mins read

Download PDF

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

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

May 2025 Ophir Fund Performance

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

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

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

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

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

Our best month ever

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

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

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

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

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

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

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

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

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

Setting records

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

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

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

One of Ophir’s Top Performing Months – Gross Returns

Source: Ophir. Data as of 31 May 2025.

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

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

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

So, which months beat May 2025?

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

Source: Ophir.

4 Lessons from May

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

1. Position sizing matters

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

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

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

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

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

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

Source: Ophir. Bloomberg.

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

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

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

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

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

Again, here our biggest weights were often our best.

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

2. Compounding is a marvellous thing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4. Never get ahead of yourself

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

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

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

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

A Brave New Solution

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

Back from the brink

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

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

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

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

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

Up stepped Pinetree Capital.

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

Action was swift and decisive …

Source: Bravura FY24 presentation

The Board and management team underwent an immediate overhaul.

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

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

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

Source: Bravura 1H25 presentation

Revenue starting to grow again

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

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

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

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

Source: Bravura FY25 presentation, Ophir

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

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

Rule of 40?

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

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

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

So we think there is big upside for Bravura.

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

Kindest regards,

Andrew Mitchell & Steven Ng

Co-Founders & Senior Portfolio Managers

Ophir Asset Management

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

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

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

16 Jun, 2025 Fund Update - Distribution Estimates FY25

23 May, 2025

Letter to Investors - April 2025

Letter to Investors • 15 mins read

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

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

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

April 2025 Ophir Fund Performance

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

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

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

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

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