Ophir Asset Management

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Ophir Asset Management

Ophir is a small and mid cap funds management specialist. To learn more go to www.ophiram.com

There are three key elements of the Ophir value proposition:

1.

Ophir is a specialist small and mid cap equities fund manager founded by Senior Portfolio Managers Andrew Mitchell and Steven Ng with over $1.0bn under management. Track Record: the Senior Portfolio Managers have >10 years experience co-managing capital through various market cycles (including the GFC) delivering exceptional returns. The flagship Ophir Opportunities Fund has returned 32% p.a. (gro

ss of fees to 30 June 2021) since inception in August 2012.

2. Complete Alignment: the Senior Portfolio Managers have the entirety of their liquid personal investments within the Ophir Funds.

3. Constrained Capacity: All Ophir Funds are limited in size to ensure the best possible environment for long term outperformance. Ophir operates three Australian and global small and mid-cap equity investment strategies on behalf of institutional investors, family offices, high net worth individuals and sophisticated investors. The Ophir High Conviction Fund is listed on the Australian Stock Exchange as a listed investment trust (LIT) under the ticker code OPH. To receive up to date Ophir Asset Management investment insights and our monthly Letter to Investors, please go to our website www.ophiram.com.

09/01/2022

Big Apple indeed!

Apple has become the first company in history to reach a market capitalisation of USD $3 trillion. Last week the stock price reached $182.85, crossing that $3 trillion mark (see chart below).

To put that into perspective, the top 100 companies in Australia currently have a market capitalisation of approximately USD $1.5 trillion. This means Apple is now worth almost twice the ASX100!

Apple’s stock has returned 35% in 2021; 82% in 2020; and 89% in 2019.

The questions is, will this rally continue?

With recent events such as the Fed minutes delivering a gut punch to some high growth stocks, many investors might think there isn’t much further to run in 2022.

Where do you see Apple in the next 3-5 years?

06/01/2022

Growth outperformed Value in 2021?

Investors fishing in the large cap part of the US stock market would say so with the S&P 500 Growth index returning 32.0% vs. its Value counterpart’s return of 24.9% for the calendar year.

However, in the small cap pool 2021 played out very differently…

The Russell 2000, which tracks the smallest 2000 out of the 3000 largest US traded stocks, trailed significantly returning 14.8% over the year.

But what was the return of its growth and value counterparts for 2021?

The Russell 2000 Value index returned an outstanding 28.2% while the Russell 2000 Growth index returned a measly 2.9% - the most US small cap value has won by since the tech wreck in 2000! See table below.

The primary reason behind this divergence was likely economic reopening and the risk of increasing interest rates – a justifiable position given the Fed recently announced its forecasts see three interest rate hikes in 2022.

Has the market priced in the impact of these interest rate hikes or will US small cap growth stocks continue to derate?

US Small Cap Growth outperformed Value by 30% in 2020 and circa 85% of that Growth outperformance was reversed in 2021 – so potentially there isn’t much further to go but only time will tell!

03/01/2022

Valuations matter! And they matter right now.

In 2020 corporate earnings crumbled on initial lockdowns, but valuations exploded higher as monetary support and vaccine news came to the rescue – providing great returns overall for shares.

In 2021 global shares saw even better returns. But the opposite was the cause.

It was driven by massive earnings growth, as economies reopened.

This was despite valuations detracting from returns as price / earnings ratios shrank (de-rated).

Though many share markets are at or near all-time highs - there are parts that got smashed in 2021 with falling valuations completely overwhelming any earnings growth.

Which parts?

The most expensive parts.

Top chart shows this with things like the ARK Innovation ETF, expensive unprofitable tech stocks, Chinese internet stocks and SPACs all getting hammered.

This happened most recently in Nov/Dec when the market reacted to more aggressive tapering ahead by the Fed.

These expensive parts of the market saw some of the biggest winners in 2020 when the Fed first loosened monetary policy.

The lesson – don’t just follow yesterday’s winners. As Graham once wisely taught Buffett “Price is what you pay, value is what you get”.

One forecast for 2022 – valuations will matter a lot with a tapering and rate hiking Fed.

19/12/2021

Omicron, higher inflation and interest rates with a more hawkish US Federal Reserve, huge disparities in market valuation metrics and the recent savage bear market in non-profitable tech companies…

…all the hot button issues for share markets now.

Some examples of more well-known names in the market to be hit hard recently of the high growth, low/no profit technology related businesses – with their share price falls from their 52 weeks highs in brackets, include: Draft Kings (-63.7%), Pinterest (-61.1%), Lyft (-45.1%), Robinhood (-78.7%), DocuSign (-52.3%) and Peloton (76.7%) – although it has got its own S*x and the City related issues.

We talk about all these issues and more in our latest Letter to Investors we just released.

If you’re interested in having a read or signing up to our latest insights, please click on the link in the comments section below.

15/12/2021

The Grinch List.

No ones like a Christmas Grinch – let alone financial markets.

Bank of America just came out with their latest tail-risk list (aka “Grinch List”) from fund managers.

Rate hiking central banks are back as top of the pops (see first chart).

The US Fed has just delivered on its recent hawkish tilt today – bringing an end to QE early in March next year and forecasting three interest rate rises for 2022.

Forward looking markets seem to have already pencilled this in though – taking it in their stride with key US share market indices rising on the news today.

Globally, we might have seen a bottoming in central bank policy rates as almost all are hiking and virtually no one is cutting (second chart).

Key to watch out for will be whether central banks, particularly the Fed, go too far too fast.

Is there anything you think is missing from the Grinch List this Christmas?

12/12/2021

Fear the Fed?

Or at least that’s what many share market investors may be thinking as rates lift off is looking more likely next year.

History suggests though investors should stress less.

Nine out of the last nine times in the year before the Fed has started a new interest rate hike cycle the market has risen (see chart).

And on average almost 20% higher!

A strong economy - that the Fed is responding to - and rising corporate earnings have outweighed any valuation compression.

Is this time different or should investors expect history to repeat?

Our money is on history repeating. The market is generally skewed in investors‘ favour.

We remain fully invested. At times like these when some investors are adding higher rates to their worry list we are reminded of that great quote by famed investor Peter Lynch:

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.

08/12/2021

More transmissible but less deadly?

That seems to be the working hypothesis of markets about the Omicron variant to date with a significant amount of initial share market losses recently recouped.

There seems to be no doubt Omicron has taken a big genetic jump from previous variants as the excellent top chart from Nextstrain shows.

And whilst it’s still way too early to be definitive, the increase in cases at source in South Africa has not been accompanied by an increase in deaths (bottom chart).

Absent much company reporting at this time of year and markets will be fixated on this issue through Christmas.

Let’s hope there is some good holiday season news in store here for everyone – I think we’ve all earned it!

05/12/2021

Want to turn a 21,833% return into a 4,670,630% return?

Just miss the worst 10 days on the share market each decade since 1930.

Oh, the siren song of market timing.

Who wouldn’t want to try and avoid the worst days right when the upside can be as HUGE as that described above!

If you could then Mr Musk or Mr Bezos might not be the wealthiest people in the world – depending on how long you’ve been doing it for - it could be YOU!

Well, the problem is, you can’t.

The very worst days for the share market, just like the best days, are scattered like needles in a haystack.

Tough to find when the probability of the market going up or down on a given day is about equivalent to a coin flip.

Think market valuations are a good predictor of when you are more likely to find ‘good’ or ‘bad’ needles?

Think again.

‘Expensive’ or ‘cheap’ markets are pretty awful predictors of market returns over the short term such as the next day, week, month or year.

Why sacrifice the haystack when if you get it wrong and miss out of the 10 best days per decade your 21,833% shrinks to 58%.

The very best days matter a lot for your returns.

The haystack is skewed in your favour.

Buy haystack.

Or even better – buy a bit better haystack with a quality active manager and stick with them.

01/12/2021

The last time I saw a time lapse chart of a map of the U.S. that was this insightful was at the 9/11 Memorial Museum in NYC.

It showed the rapid grounding of over 3,000 flights in the space of an hour after the attacks.

Below is the spread of the pandemic throughout the U.S. since it began.

Will Omicron show a rapid increase in case numbers like we haven’t seen before?

But much more importantly, will it be a blessing or a curse?

Time will tell but if it’s indeed more transmissible but less dangerous (studies suggest this is what happened to mutations of the Spanish flu) then ‘living with the virus’ may be easier.

One thing is for sure though – markets hate uncertainty. But in this case, it shouldn’t take too long to resolve.

Source: r/Data is Beautiful

28/11/2021

Bulls on parade!

No matter where you look, share allocations in portfolios have shot to multi-decade highs and bond/debt allocations to multi-decade lows.

TINA – or “There Is No Alternative” is in full force for asset allocators courtesy of still ultra-low interest rates, helping to keep share markets near all-time highs.

Below are just two examples - with Australia’s big superannuation funds (top charts) and Bank of America private client allocations (bottom charts) showing how risk has been turned up to full volume.

Part of this is no doubt the response of asset allocators needing to hit absolute returns targets with shares being the least bad option on a street that is littered with expensive (low yielding) bonds.

While consumers opened their wallets on Black Friday just gone it was certainly a Friday filled with red for share markets globally as news of new COVID variant Omicron spread.

The question for share markets is will the bulls and TINA prevail again – buying the dip?

24/11/2021

The United States – the supreme leader of world equity markets.

But it was not always this way.

Organised trading in securities first began in Amsterdam in 1602 and then London in 1698, with the U.S. a laggard – only starting in New York in 1792.

Even then, the United States used to be just 15% of world equity markets in 1900.

Incredibly now it’s around 60% overall and a massive 68% of developed markets.

This is a far cry from 1900 when the UK was the world’s largest share market comprising 24%, a time when Germany (13%) and France (11%) were similar in size to the United States.

Superior performance of the U.S. economy and returns from its share market – as well as a deluge of IPOs – has seen it rocket to the lead and it’s not even close.

Currently Japan has the second largest share of global equities at a little over 5%, less than a tenth the value of the United States.

In the last 10 years alone, the United States has turned on the jets and only strengthened its lead – MASSIVELY outstripping returns from other developed markets (top chart) and bonds (bottom chart) in a display we haven’t seen in generations!

Will they maintain their ascendancy?

Or are we seeing ‘peak US’ – with another upending of global share markets over the next century?

21/11/2021

Wait for the end – it’s the best bit.

The below chart tracks the wealth of the 10 wealthiest people on the planet over 2020 and 2021.

It provides some great insights into the state of capitalism since the pandemic began.

What are our takeaways?

1. The dominance of US and in particular Tech business founders.
2. Just how quickly Elon Musk’s wealth has risen – that’s what happens when your car company’s valuation rises over USD$1tril in 18 months!
3. The lead Musk has put on the pack in just the last two months as investors have been willing to shoot Tesla stock to the moon.
4. How much the rich have gotten richer since the pandemic began – the 10th wealthiest person today (Warren Buffett) is wealthier than almost all the top 10 pre-pandemic.
5. The ultra rich have remained relatively stable with 7 of the top 10 pre-pandemic still in the top 10 today.

In the last week Mr Musk got into a Twitter spat with Bernie Sanders after he suggested the extremely wealthy need to pay their fair share in tax.

This comes as so far President Biden’s Build Back Better plan has been fairly light handed on the ultra-wealthy compared to some previously proposed “billionaire tax” plans.

With the rise in inequality, one thing is for sure – this issue is not going away anytime soon!

What’s your most interesting takeaway from the chart?

Address

Level 27, Governor Phillip Tower, One Farrer Place
Sydney, NSW
2000

Telephone

+61281880397

Website

http://www.ophiram.com/

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