Bargain hunting on the ASX as bad news offers discount deals

Few parts of the sharemarket are attracting as much investor pessimism as discretionary retail, as squeezed households rein in spending. But with so much bad news factored into the retail sector, Ophir senior portfolio manager Andrew Mitchell is thinking about the opportunities at hand.

“When there’s blood on the dance floor as there is now, this is when the best opportunities emerge,” he says.

“Now that’s not saying that retail can’t go lower from here. But what we’re saying is that there’s a lot factored in, so it’s time now to start looking at it because we think that the bottom is likely going to be in that September-October period of this year.”

Mitchell doesn’t shy away from the pressures on Australian households, who are facing further energy price hikes and bearing the brunt of steep interest rate hikes. However, the small-cap fund manager says with so much bad news priced into the retail sector, it’s time to start looking at the valuations of some unloved stocks.

A big recent winner for Ophir has been Cettire, a global luxury online retailer that it continues to hold. It is also looking at Universal Store, which is down about 30 per cent in the last year.

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The interest in retailers is part of Mitchell’s wider argument that small-cap stocks – which tend to be particularly hard hit in times of market volatility – are trading at bigger discounts to larger companies.

Ophir, founded by Mitchell and Steven Ng, has more than $1 billion in funds under management across several small and mid-cap funds. Its original fund, the Ophir Opportunities Fund, which closed to new investors in 2015, reported 25.2 per cent after-fee returns last financial year.

Over the last 10 years, this fund has made average annual returns of 19.1 per cent, which it says puts it at the top of its peer rankings, citing data from FE fundinfo. Its ASX-listed Ophir High Conviction Fund, meanwhile, has recently been trading at a discount to its net asset value.