Marlin – September 2019 Quarter Newsletter

1
Notable Returns for the Quarter
in local currency
Market Overview
Global markets continued to track higher during the quarter,
despite a short sell-off in August driven by an escalation in the US-
China trade war and lingering economic growth concerns. The US
market has now notched up gains every quarter this year, bringing
the year-to-date gain to 18.7% and making it the strongest start to
a year since 1997.
The end result masked a lot of turbulence during the quarter.
In addition to the trade war induced market volatility in August,
economic data continued to weaken - most notably in Europe,
but also in the manufacturing sector across most of the globe.
This economic weakness has seen interest rates fall globally and
created a lot of talk about what investors should do in a lower
growth and lower return environment. We provide some thoughts
on this topic below.
Marlin had an Adjusted NAV return of 7.0% for the quarter,
compared with our global benchmark which gained 3.1%.
Portfolio developments
Despite the weaker economic backdrop during the quarter the
companies in our portfolio continued to report solid financial
results and the majority of our holdings contributed positively to
portfolio performance in the quarter.
Our largest portfolio holding Alphabet (+13% during the quarter)
was one of our top performers after announcing results that
showed continued strong growth in its digital advertising business.
The company delivered 22% revenue growth in the second
calendar quarter, driven by rapid growth in mobile advertising and
YouTube. Our research on Alphabet continues to highlight good
returns for advertisers shifting their advertising budgets to Google
and YouTube and away for traditional media. Alphabet’s only major
competitor is another of our portfolio holdings, Facebook, which
is benefiting from the same trend and seeing strong advertising
growth on both the Facebook and Instagram platforms. We still see
many years of growth ahead for both companies.
New portfolio holding Dollar General (+18%) rallied sharply
following strong second calendar quarter earnings. Dollar General’s
scale (16,000 stores) and huge footprint allows them to offer both
convenience and prices that are materially better than local grocery
stores. The recent results demonstrate that the company continues
to capture greater share of low and middle-income consumers’
budgets, while its internal initiatives including DG Fresh and Fast
Track are showing promise. DG Fresh is helping lift gross margins.
It brings the distribution of fresh and frozen products in-house,
lowering procurement costs and fees paid to distributors. Fast
Track involves using shelf-ready containers to reduce the time
required to stock shelves and reduce out-of-stock occurrences.
TYLER
TECHNOLOGIES
+22
%
EDWARDS
LIFESCIENCES
+19
%
LKQ
CORPORATION
+18
%
DOLLAR
GENERAL
+18
%
UNITED PARCEL
SERVICE
+17
%
Early results have shown a 20% increase in item availability. We
continue to be impressed with management’s execution and
believe Dollar General still has a long growth runway ahead.
Tyler Technologies (+22%) reported 39% growth in software
subscription revenue in the second calendar quarter, having
recently booked the two largest subscription orders in the
company’s history. Tyler is a new portfolio holding that we
discussed last quarter and it provides software applications to
US local authorities. These applications help local government
manage a range of functions including finance, property appraisal
and taxes, payroll, court and prison management, and emergency
response. This is an underserved end-market, with the majority of
local authorities well behind the curve on technology adoption.
Investing in a low growth environment
Many developed markets are witnessing lower levels of
productivity and population growth. Ageing populations and
high debt levels (consumer and government debt) also create
headwinds for consumption and economic growth. This sub-par
economic environment and low interest rates mean that investors
should expect more moderate returns going forward.
However, the economic picture I have just painted does create
opportunities for active investors. While many businesses will
struggle in this environment, others may be immune and even
thrive. Overlaying technological change makes the picture even
more interesting. Department store chains are in decline, while
ecommerce companies like Amazon and Alibaba are thriving.
Global banks are struggling in a low interest rate environment,
but digital payments companies like MasterCard and PayPal
are growing rapidly. Cable and satellite TV providers are losing
subscribers, while Netflix is adding millions of new subscribers a
quarter. While market returns may well be lower going forward, a
dynamic business environment (albeit a lower growth one) creates
opportunities for active investors.
To illustrate this point, consider the period since 2007 in the US.
Economic growth has been muted since 2007 (less than 2% per
annum) and share market returns have averaged just 5.5% a year.
Many businesses have performed poorly in this environment,
while a handful have done exceptionally well.
Quarter Update Newsletter
30 June 2019 – 30 September 2019
MLN NAV
$
1.01
DISCOUNT
1
7.5
%
as at 30 September 2019
SHARE PRICE
$
0.93
¹
Share price discount/(premium) to NAV (using NAV to four decimal places)

Performance
as at 30 September 2019
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+5.5%+17.1%+12.8%
Adjusted NAV Return +7.0%+16.0%+11.4%
Portfolio Performance
Gross Performance Return+6.9%+19.7%+15.1%
Benchmark Index¹+3.1%+11.8%+12.1%
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, adjusted NAV return,
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 after expenses, fees and tax,
»adjusted NAV return – the net return to an investor after expenses, fees and tax,
»gross performance return – the Manager’s portfolio performance in terms of stock
selection and currency hedging before expenses, fees and tax, 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, adjusted NAV return, 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 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, New Zealand
Phone: +64 9 484 0365 | Fax: +64 9 489 7139
Email: enquire@marlin.co.nz | www.marlin.co.nz
2
Headquarters Company% Holding
CanadaDescartes Systems 2.2%
ChinaAlibaba Group5.6%
Tencent Holdings3.8%
FranceEssilorLuxottica3.5%
GermanyAdidas4.9%
Fresenius Medical Care3.9%
Ireland Icon3.6%
United StatesAbbott Laboratories4.7%
Alphabet8.1%
Amazon.Com2.0%
Cognizant Technology Solutions 2.9%
Dollar General4.5%
Dollar Tree3.4%
Ecolab2.0%
Edwards Lifesciences 2.6%
Electronic Arts3.2%
Facebook5.5%
Hexcel Corporation 3.1%
LKQ2.5%
Mastercard4.9%
PayPal 4.9%
Signature Bank3.8%
TJX Companies5.2%
Tyler Technologies2.4%
United Parcel Service3.2%
Zoetis 2.5%
Equity Total98.9%
New Zealand dollar cash0.5%
Total foreign cash1.5%
Cash Total2.0%
Forward Foreign Exchange(0.9%)
TOTAL100.0%
Portfolio Holdings Summary
as at 30 September 2019
Company News
Dividend paid 26 September 2019
A dividend of 1.93 cents per share was paid to Marlin
shareholders on 26 September 2019, 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.
In fact, since 2007 half of the uplift in the value of the US S&P
500 Index has come from just 20 companies. The bottom half of
the companies in the index created no value in aggregate over
the same period. For investors, picking the right businesses has
been critical.
The best performers over this period were generally companies
with structural growth drivers supporting their businesses. They
were often founder-led and had wide moats that helped keep
competition at bay. Many also had pricing power or some form
of competitive edge that allowed them to take market share and
grow steadily despite the lacklustre environment.
If bought well, we believe businesses with these characteristics
will continue to deliver good returns for investors over the long-
term - even in a low growth world. Our process is designed to try
Ashley Gardyne
Senior Portfolio Manager
Fisher Funds Management Ltd
18 October 2019
to identify these businesses and hold them for the long-term.
While finding them at reasonable valuations is an ongoing
challenge, we believe it is possible to identify a handful of
these investments a year by turning over lots of rocks. A few
new investments a year allows us to create a portfolio of 20-30
investments that we think will deliver good long-term results
for investors.
If you would like to receive future
newsletters electronically please email
us at enquire@marlin.co.nz