December 17, 2018
Letters to Investors – November 2018

By Andrew Mitchell & Steven Ng
Co-founders and Senior Portfolio Managers

letter to investors

We look at a number of corporate transactions announced in Australian small caps this month and the stellar rise of modern day lay-by provider Afterpay (APT).

Dear Fellow Investors,

Welcome to the November 2018 Ophir Letter to Investors – thank you for investing alongside us for the long term.

Month in Review

Following a bruising October, global equity markets broadly clamoured off the canvas in November to stage a valiant – albeit brief – recovery of sorts. Encouraging interest rate outlook commentary from the US Federal Reserve and a momentary simmering in US-China trade relations saw relief rallies across the bulk of developed markets, the MSCI World Index finishing November +1.3%. Australian equity markets lagged the recovery, weighed down by ongoing weakness across the wider commodity matrix, mixed performances from the larger financials and growing political uncertainty following Labor’s landslide win in Victoria’s state election. The ASX 200 finished the month -2.8%, the ASX Small Ordinaries Index falling -0.4%.

Across the smaller company space, both higher-growth businesses and the lower-quality cyclicals came under pressure through the month, suggesting the sell-off continues to reflect a broader reduction in exposure to the space. This kind of wholesale capital rotation tends to present opportunities for those willing to extend a slightly longer-term outlook and, in our view, continues to remain resemblant of a similar rotation experienced across Australian small caps through the tail end of 2016. As in that period, positive company updates struggled to attract the markets favour this month as sentiment remains compressed and the majority of larger institutional market participants instead use positive share price reactions as an opportunity to raise additional cash.

Download the full Letter to Investors here.

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