Marlin – September 2017 Quarter Newsletter

1
1
9 months from 31 December 2016 to 30 September 2017
2
FANG is an acronym representing some of the popular tech stocks –
Facebook, Amazon, Netflix and Google
Technology and FANG stocks have significantly
outperformed in 2017
Notable Returns for the Quarter
in local currency
Marlin gross performance was 7.0% during the quarter ended 30
September 2017, bringing the total gain so far in 2017 to 24.3%
1
.
Coordinated global growth and a supportive corporate earnings
environment resulted in gains in most global share markets during
the quarter.
We recently travelled to Europe to meet portfolio companies and
look for new investments. Our conversations with management
teams across a range of industries support the theme of improving
global growth. Hotel chains are witnessing strong room night
growth as tourism picks up, transportation operators are seeing
increased freight volumes, and we are seeing auto manufacturers
and their suppliers talk about new investments to prepare for the
growth in electric vehicles.
The tone from corporates has shifted from repairing balance
sheets and restructuring to going after growth. Companies we
spoke to are generally looking to hire new recruits, and with
an abundance of staff available they are seeing limited wage
pressure. While it is difficult to assess if this environment will be
sustained, with European corporate earnings growth running at
15% in the most recent quarter, it is not hard to see why corporates
are optimistic.
WORLDPAY
GROUP
+29
%
ALIBABA
+23
%
PAYPAL
+19
%
MASTERCARD
+16
%
SARINE
TECHNOLOGIES
-23
%
115
110
105
100
95
90
85
80
Sep
2012
European Industrial Confidence at 5 year highs
Source: European Commission, Fisher Funds
Mar
2013
Sep
2013
Mar
2014
Sep
2014
Mar
2015
Sep
2015
Mar
2016
Sep
2016
Mar
2017
Sep
2017
The top contributors to our performance during the quarter were
Worldpay, PayPal and Alibaba. Payments processor Worldpay
rose 29% during the quarter following a takeover offer from US
based Vantiv Inc. Alibaba was a standout performer, gaining 23%
over the period on the back of 56% revenue growth in the June
quarter. PayPal was up 19%, with second quarter payment volumes
increasing 26% on the prior year, driving earnings per share growth
of 27%. The biggest detractor from performance was US heart
valve manufacturer, Edwards Lifesciences. While Edwards was
down 8% during the quarter, it is still up 17% for the year.
It is not lost on us that the best performers in the portfolio
have been technology stocks. There has been much talk of the
outperformance of the tech sector and FANG
2
stocks this year (the
US tech sector is up 26%, compared with 13% for the S&P500).
Some commentators are suggesting technology stocks are in a
bubble, but we believe it is important to consider each company
individually. While some technology stocks are certainly expensive,
others still offer good value. Nevertheless, we are watching this
trend closely and believe it is important to maintain sector diversity
in this environment. Our two most recent portfolio additions are in
the financial and industrial sectors, helping achieve more balance
in this regard.
150
140
130
120
110
100
90
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Source: Factset, Fisher Funds
S&P500 S&P500 Technology FANG
During the quarter we added two new positions (Hexcel and
Signature Bank) and increased our weightings in Essilor,
Fresenius and PayPal.
Hexcel is a leading supplier of carbon fibre composites to
the aerospace industry. Carbon fibre significantly reduces
aircraft weight and fuel usage
and is increasingly being used in
new aircraft like the Airbus A350.
Quarter Update Newsletter
30 June 2017 – 30 September 2017
MLN NAV
$
0.93
SHARE PRICE
$
0.78
DISCOUNT
16.2
%
as at 30 September 2017
Ashley Gardyne
Senior Portfolio Manager

Performance as at 30 September 2017
3 Months
3 Years
(accumulated)
Since Inception
November 2007
(accumulated)
Corporate Performance
Total Shareholder Return+1.1%+24.6%+58.3%
Adjusted NAV Return +6.2%+29.6%+76.9%
Manager Performance
Gross Performance Return+7.0%+45.3%+149.5%
Benchmark Index¹+6.1%+52.7%+103.6%
1
Benchmark index: World Small Cap Gross Index until 30 September 2015 & S&P Large Mid Cap/S&P Small Cap
Index (hedged 50% to NZD) from 1 October 2015
Non-GAAP Financial Information
Marlin uses non-GAAP measures, including adjusted net asset value, gross performance return and total
shareholder return. The rationale for using such non-GAAP measures is as follows:
»adjusted net asset value – the underlying value of the investment portfolio adjusted for capital
allocation decisions,
»gross performance return – the Manager’s portfolio performance in terms of stock selection and
hedging of currency movements, and
»total shareholder return – the return to an investor who reinvests their dividends, and if in the money,
exercises their warrants at warrant maturity date for additional shares.
All references to adjusted net asset value, gross performance return and total shareholder return in this
newsletter are to such non-GAAP measures. The calculations applied to non-GAAP measures are described in
the Marlin Global Non-GAAP Financial Information Policy. A copy of the policy is available at
http://marlin.co.nz/about-marlin/marlin-policies
Disclaimer: The information in this newsletter has been prepared as at the date noted on the front page. The information has been prepared as a general summary of the matters covered only, and it is by
necessity brief. The information and opinions are based upon sources which are believed to be reliable, but Marlin Global Limited and its officers and directors make no representation as to its accuracy
or completeness. The newsletter is not intended to constitute professional or investment advice and should not be relied upon in making any investment decisions. Professional financial advice from an
authorised financial adviser should be taken before making an investment. To the extent that the newsletter contains data relating to the historical performance of Marlin Global Limited or its portfolio
companies, please note that fund performance can and will vary and that future results may have no correlation with results historically achieved.
Marlin Global Limited
Private Bag 93502, Takapuna, Auckland 0740
Phone: +64 9 484 0365 | Fax: +64 9 489 7139
Email: enquire@marlin.co.nz | www.marlin.co.nz
2
The Marlin quarter update newsletter is produced for the March
and September quarters only. The annual and interim reports cover
the June and December periods. If you would like to receive future
newsletters electronically please email us at enquire@marlin.co.nz
Headquarters Company% Holding
CanadaDescartes Systems 3.4%
ChinaAlibaba Group4.4%
DenmarkWilliam Demant 3.2%
FranceEssilor International3.9%
GermanyAdidas2.7%
Fresenius Medical
Care
4.0%
IrelandIcon3.2%
IsraelSarine Technologies1.4%
ItalyBrembo2.8%
United StatesAbbott Laboratories3.4%
Alphabet6.2%
Amazon.com2.8%
Blackhawk3.0%
Cerner Corporation 3.2%
Cognizant Technology
Solutions
4.3%
Core Laboratories2.5%
eBay 3.8%
Ecolab2.9%
Edwards Lifesciences 3.8%
Expedia3.7%
Hexcel Corporation 3.3%
LKQ4.5%
Mastercard5.3%
PayPal 6.6%
Signature Bank2.9%
United Parcel Service2.1%
Zoetis 3.1%
Equity Total96.4%
New Zealand dollar
cash
1.6%
Total foreign cash2.2%
Cash Total3.8%
Forward foreign
exchange contracts
-0.2%
TOTAL100.0%
Portfolio Holdings Summary
as at 30 September 2017
Company News
Dividend paid 29 September 2017
A dividend of 1.83 cents per share was paid to Marlin shareholders on 29 September 2017, under the quarterly distribution policy.
Interest in Marlin’s dividend reinvestment plan (DRP) remains high with 40% of shareholders participating in the plan. Shares issued to
DRP participants are at a 3% discount to market price. If you would like to participate in the DRP, please contact our share registrar,
Computershare on 09 488 8777.
Signature Bank is a specialist regional bank, lending primarily to wealthy
families and private businesses. They are still a small bank and we believe
their model will allow them to deliver double-digit earnings growth over the
medium term.
During the quarter, we exited four positions to streamline the portfolio and
make way for the new holdings. We exited Japanese car park operator
Park24 after its growth became increasingly reliant on its car sharing
business and its international operations. We exited our position in
Graco (pumps and industrial painting equipment) after strong share price
performance resulted in an elevated valuation. We sold out of Nike due to
the headwinds in its core US market. Declining sales at retailers like Foot
Locker, a highly promotional environment and design/style misses by Nike
provide headwinds that we believe are stronger than the market appreciates.
We also took the opportunity to sell WorldPay after it received a takeover
offer from Vantiv and its share price spiked.
Attractive investment opportunities are harder to find than they were a few
years ago. With Europe earlier in its economic cycle than the US, we are
spending an increasing amount of time looking for new investments in that
market. Following our recent trip to the UK, France and Germany we are
doing in-depth work on several new ideas - watch this space.
Ashley Gardyne
Senior Portfolio Manager, Fisher Funds Management Ltd
25 October 2017