MLN – December 2020 Quarterly Newsletter

1
SIGNIFICANT RETURNS IMPACTING
THE PORTFOLIO DURING THE
QUARTER IN LOCAL CURRENCY
Despite what was an unusually difficult year for society, it was an upbeat
year in the stock market. 2020 saw the fastest 30% market decline in
history, as well as one of the most whiplash inducing rallies as the market
started to see the economy would avoid a prolonged recession despite
the global pandemic.
Global shares finished 2020 with a gain of 14%
2
, pushed higher by a
technology sector rally and hitting new record highs in defiance of the
pandemic. The tech-heavy US Nasdaq gained 44% for the year to record
its best performance since 2009, as work and commerce moved online
due to lockdowns.
Global markets also gained materially in the December quarter, rising 14%
as positive COVID-19 vaccine developments resulted in greater certainty
that we will soon be on the path to recovery.
Strong performance in a volatile environment
Marlin had a very good year in 2020, delivering a 29.8% gross
performance return compared with our global benchmark which gained
10.2% for the twelve months. For the December quarter Marlin gained
10.2% (gross performance) compared with the global benchmark which
gained 12.5%. The Adjusted NAV return for the quarter was 7.9%.
Fisher Funds’ long established investment style helped us considerably in
2020. Investing in market leading growth companies with strong balance
sheets was a winning formula – particularly early in the year when markets
were plunging and lower quality, highly indebted and cyclical businesses
came under significant selling pressure. As a result, the portfolio fell 11%
(gross performance) in the first quarter of the year when COVID-19 hit,
materially better than our benchmark which fell 20%. As a result we
had more capital to deploy in March and our watchlist of investment
candidates allowed us to capitalise on a number of once-in-a-decade
investment opportunities. For the last three-quarters of the calendar year
the portfolio gained 45% (gross performance), ahead of the benchmark’s
38% gain. A significant portion of this outperformance came from the new
companies we added to the portfolio during the pandemic-driven sell-off
(like Stoneco and Floor and Décor).
It comes as no surprise that the big winners for the year were companies
that benefited from trends that COVID-19 accelerated like ecommerce
and digital payments. PayPal was the biggest contributor to our
performance after surging 117% during the year, while Amazon surged
76%. New portfolio addition Stoneco, a digital payments company
based in Brazil, also contributed materially and has gained 224%
since we first added it to the portfolio in May. The biggest drag on fund
performance was aircraft composites manufacturer, Hexcel, which fell
34% in response to the pandemic driven drop in travel and demand for
new aircraft.
Market dynamics shift on vaccine approvals
There was a shift in market dynamics in the December quarter driven
by positive vaccine clinical trials. This drove a risk-on mood in global
equity markets, eclipsed worries about the near-term economic outlook
and, as shown in the chart below, led to a strong rotation out of
growth companies and those that have benefitted from COVID-19 (like
ecommerce players) and into cyclical value stocks (like banks and energy
stocks). We saw this abrupt change in market dynamics in our portfolio
during the quarter, with cyclical companies that underperformed earlier
SIGNATURE
BANK
+64
%
STONECO
+59
%
HEXCEL
CORP
+45
%
HILTON
WORLDWIDE
HOLDINGS
+30
%
GARTNER INC
+28
%
in the year like Signature Bank and Hexcel jumping 64% and 45%
respectively.
¹
Share price premium to NAV (using NAV to four decimal places)
2
Measured by the MSCI World Index
as at 31 December 2020
1 October 2020 – 31 December 2020
MLN NAVPREMIUM
1
$
1. 1 018.3
%$
1.3 0
Share Price
QUARTERLY NEWSLETTER
We have previously talked about how we try to construct a portfolio that
isn’t too exposed to any one sector or theme and can do well in a range
of different market environments. We have been extremely conscious
of this in 2020 as many technology stocks benefited from COVID-19
while cyclical companies slumped. While the outperformance of growth
companies has helped our performance for most of the year, we have
added more cyclical companies to the portfolio throughout the year as
this is where we have seen the most value. This saw us add companies
like Hilton, Heico, Stoneco and Floor and Décor to the portfolio.
These new additions and the tilt towards more cyclical companies helped
the portfolio keep up with the market benchmark in the December quarter
- a period where cyclical and value stocks materially outperformed. That
said, while at the margin the portfolio now has more cyclical exposure
we haven’t changed what we look for in companies. These are all still
competitively advantaged growth companies, just like our long-standing
investments in Alphabet, PayPal and Alibaba.
Thoughts for 2021: Being careful while others get greedy
We are seeing extremely bubbly behaviour in some parts of the market,
which we will continue to avoid. Bitcoin seems to be flavour of the month
with new retail investors at the moment. You can understand why when
its price (US$40,000 as I write) is up over 700% since its lows during the
COVID sell-off. New investors feel like they have been missing out on
the fun and have been piling in. Bitcoin doesn’t produce any cash flow, it
doesn’t have any physical uses like precious metals, and is therefore only
worth what the next person will pay for it. Buying bitcoin is not investing, it
is pure speculation.
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-11%
2020 Pre-vaccine news
Value and cyclical stocks have outperformed
post vaccine announcements
2020 Post-vaccine news
26%
10%
5%
ValueGrowth

investments, or medical device company Boston Scientific). Sometimes
these companies may be temporarily out of favour (eg. the UK food-to-go
and coffee chain Greggs, or Signature Bank - both of which have been
temporarily impacted by COVID-19). Sometimes these businesses are
simply less glamourous than the latest crop of tech market darlings (eg.
our investments in Facebook, Alphabet and Alibaba provide exposure
to rapidly growing and dominant tech businesses – at a fraction of the
valuations of Tesla, Snowflake or Zoom).
We believe sticking to the middle of the fairway in times like these will pay
off over the long-term. There is a chance that this discipline could hurt in
the short-term if the market darlings like Tesla continue to surge higher,
but over the longer-term we have no doubt this is the right approach to
help our clients build and preserve their wealth.
PERFORMANCE
as at 31 December 2020
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
Headquarters Company
%
Holding
China
Alibaba Group6.6%
Tencent Holdings4.0%
France
EssilorLuxottica2.9%
Germany
Adidas4.4%
Ireland
Icon3.0%
United Kingdom
Greggs Plc1.3%
United States
Alphabet7.0%

Amazon.Com3.6%
Boston Scientific Co3.0%

Dollar General3.0%
Dollar Tree4.7%

Edwards Lifesciences Corp.4.1%
Facebook7.9%
First Republic Bank San
Francisco
3.2%
Floor & Décor Holdings2.4%
Gartner Inc3.4%
HEICO Corporation2.0%
Hexcel Corporation3.2%
Hilton Worldwide Holdings3.2%
Mastercard5.4%
PayPal Holdings4.5%
Signature Bank6.8%
StoneCo2.1%
TJX Companies Inc4.1%
Equity Total95.8%
New Zealand dollar cash1.3%
Total foreign cash2.2%
Cash Total3.5%
Forward Foreign Exchange0.7%

TOTAL100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 31 December 2020
COMPANY NEWS
Electric vehicle (EV) stocks are a similar story. On the back of the share
market success of Tesla (which recently joined the S&P 500 and saw its
share price gain 743% in 2020) there has been a bull market in all things EV
related. We have seen electric truck manufacturer Nikola (that doesn’t even
have a working vehicle) list on the stock market and skyrocket to a market
valuation of nearly US$30bn, before falling rapidly back to earth. While we
don’t think investors necessarily need to be fearful after the recent market
rally – there are certainly reasons to be very careful in 2021 given bubbles
that are appearing in parts of the market.
Sticking to the middle of the fairway
In investing it is always important to be disciplined and not get caught up in
all the excitement around the latest themes and trends. We believe this is
even more relevant at this point in the investment cycle given how stretched
valuations are.
If you look carefully you can still find high quality growth companies to
invest in at reasonable prices. Sometimes these are in parts of the market
that simply don’t grow as rapidly and hence aren’t attracting stratospheric
valuations (eg. our Dollar General and Dollar Tree discount store
Ashley Gardyne
Senior Portfolio Manager
Fisher Funds Management Ltd
15 January 2021
If you would like to receive future
newsletters electronically please email us
at enquire@marlin.co.nz
Dividend Paid 18 December 2020
A dividend of 2.20 cents per share was paid to Marlin
shareholders on 18 December 2020, 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.
3 Months
3 Years
(annualised)
5 Years
(annualised)
Company Performance
Total Shareholder Return+22.7%+29.1%+20.9%
Adjusted NAV Return +7.9%+17.2%+14.1%
Portfolio Performance
Gross Performance Return+10.2%+21.3%+18.2%
Benchmark Index¹+12.5%+7.9%+10.9%
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 combines the share price performance, the warrant price
performance, the net value of converting any warrants into shares, and the dividends paid to
shareholders. It assumes all dividends are reinvested in the company’s dividend reinvestment plan,
and that shareholders exercise their warrants, (if they were in the money), at warrant expiry date.
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/