MLN – June 2022 Quarterly Newsletter

1
Throwing the baby out with the bathwater
This was another tough quarter for international equity markets, as the focus
shifted from high inflation to fed tightening and the potential for a recession.
Marlin ended the quarter with gross performance down -14.8% and adjusted
NAV down -14.0%, compared with our global benchmark which was down
-10.4%.
Global market backdrop
As the Federal Reserve tries to tame persistently high inflation, recessionary
fears have risen. Economists now predict a 33% chance of recession in the
next 12 months, up from 15% in March. While we can question the track-
record of economist forecasts, the Federal Reserve has clearly stated the only
tool they have to bring inflation down is to dampen demand and slow down
economic growth.
This is not a favourable backdrop for equities. This quarter saw the S&P 500
Index enter a bear market (being a 20% decline), with the more tech-heavy
Nasdaq having already achieve this ignominious milestone back in March.
Underneath these headline numbers is a pronounced rotation out of growth
stocks into value names, particularly energy and defensives (lower growth
but more stable industries like utilities or consumer staples) as investors seek
refuge from the twin concerns of inflation and a recession.
The speed and severity of this shift in both directions has been extreme.
The 24% underperformance of growth versus value in the last seven
months, is at levels last seen in the 2000 tech sell-off. And like the tech-
bubble, speculative companies with unsustainable business models rose to
ridiculous valuations post COVID, supported by an accommodative Fed and
government stimulus. Once the tide of easy money went out, these business
models were found wanting, and these stocks are (justifiably in our view)
down 70%, 80% or even 90%.
Like Pets.com in 2000, Peloton may be the poster child of this post COVID
madness. Described by some as ‘an iPad on a bike,’ Peloton’s share price
increased eight-fold during 2020 to a market cap of nearly $50 billion. It
has now fallen 95%. Or take Nikola, an electric truck manufacturer, which
reached a market cap of $28 billion, despite having not produced a single
vehicle. It is now worth $2 billion.
As we often see in periods of macroeconomic concerns, equity markets
are driven more by sentiment than fundamentals. Investors are unwilling
to look beyond the clouds on the horizon and instead rush for the exits.
These selloffs are usually indiscriminate. In the scramble for the door,
companies are sold-off regardless of longer-term fundamentals. High-quality,
established, and profitable companies have been ‘thrown out with the
bathwater’ alongside their more speculative counterparts.
Take Affirm, which like Afterpay was one of more than 100 ‘buy-now-pay-
later’ companies that took-off in recent years. This is a competitive space,
barriers to entry are low and these companies are all loss-making. At its
peak, Affirm was worth nearly $50b, despite only processing $12 billion of
transactions in 2021, and has since fallen 90%.
Compare that to our portfolio holding PayPal. It is the leading ecommerce
payment platform, processing over $1.2 trillion of transactions last year and
growing, with 20% profit margins. That is 100-times the transaction volumes
of Affirm. Yet at the market peak last year, PayPal’s valuation was only
7-times higher. With PayPal’s stock now down 70% to $80 billion, we think
there is a large disconnect between near-term sentiment and the underlying
fundamentals of this business.
This market myopia is evident across our portfolio. Companies like Meta
or Floor and Décor are pricing in little to no future growth. These are both
high-quality names with proven business models and robust growth runways,
yet the market has treated them like a speculative tech start-up. History has
shown that periods of extreme negative sentiment have typically led to strong
future returns, and sentiment on quality growth companies is currently as
negative as we have ever seen.
Near-term, the risk of a recession is a real concern. But looking further out,
there are many opportunities for the patient and long-term investor, and we
believe our portfolio is well-positioned to deliver strong returns.
Company performance
Alibaba (+4.5% in local currency in Q2) rose alongside other Chinese tech
names. Tencent (-4.9% in Q2). While the US economy decelerates, the
opposite is occurring in China. The economy is improving as the country moves
past recent COVID lockdowns, coupled with supportive fiscal and monetary
policy. The Government has also slowed the pace of regulatory reform, instead
publicly supporting the China tech industry. With a more supportive economic
and regulatory backdrop we expect sentiment to continue to improve and align
with the long-term fundamentals of these names.
Dollar General (+10.5%) and Dollar Tree (-2.7%) benefited from the shift to
defensive names on recessionary fears, and strong underlying performance
despite the worsening consumer and inflationary backdrop. Historically these
two companies have benefitted from a recession. In the Global Financial
Crisis, comparable store sales growth accelerated as consumers traded
down and shopped closer to home, and we are seeing a repeat of this.
Netflix (-53.3%) was our worst performer for the quarter. We added Netflix to
the portfolio earlier this year, as concerns around increasing competition and
slowing growth saw the share price halved. Our thesis is that the unmatched
scale of Netflix’s content is a competitive advantage and that new initiatives
like advertising and minimising password sharing will help the company
capture the full value of this content over the longer term. In the near-term
however, the company continues to face pressure on subscriber growth,
which we believe the market is unfairly extrapolating out to the future.
Portfolio activity
While cognisant of the recessionary concerns, we have been taking
advantage of the negative sentiment towards quality growth stocks.
Having added three new names to the portfolio last quarter, this quarter we
increased our weight in attractive opportunities including Amazon, PayPal,
and Salesforce. We funded these additions by exiting Hexcel, a leading
manufacturer of composite components for aircraft. With the onset of COVID,
Hexcel was the hardest hit company in our portfolio. Following recent strong
relative performance, we think the risk/reward is now less attractive than other
names in our portfolio and we have reallocated the capital accordingly.
¹
Share price premium to NAV (using the net asset value per share, after expenses, fees and tax, to four decimal places).
as at 30 June 2022
1 April 2022 – 30 June 2022
MLN NAVPREMIUM
1
$
0.8926.2
%$
1.1 2
Share Price
QUARTERLY NEWSLETTER
Ashley Gardyne
Senior Portfolio Manager
Fisher Funds Management Ltd
15 July 2022

PERFORMANCE
as at 30 June 2022
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 a 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 Holdings5.6%
Ireland
Icon5.5%
United Kingdom
Greggs Plc3.2%
United States
Alphabet8.1%
Amazon.Com7.3%
Boston Scientific4.5%
Dollar General3.1%

Dollar Tree3.0%
Edwards Lifesciences Corp.2.1%

First Republic Bank San
Francisco
3.7%
Floor & Décor Holdings5.6%
Gartner Inc3.0%
Mastercard3.9%
Meta Platforms Inc7.8%
Microsoft3.5%
Netflix2.5%
NVR Inc3.1%
PayPal Holdings6.7%
salesforce.com5.1%
Signature Bank4.7%
StoneCo1.0%
Equity Total99.6%
New Zealand dollar cash1.3%
Total foreign cash0.1%
Cash Total1.4%
Forward Foreign Exchange(1.0%)

TOTAL100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 30 June 2022
COMPANY NEWS
If you would like to receive future
newsletters electronically please email us
at enquire@marlin.co.nz
Dividend Paid 23 June 2022
A dividend of 2.13 cents per share was paid to Marlin
shareholders on 23 June 2022, 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(7.4%)+18.4%+18.4%
Adjusted NAV Return (14.0%)+6.8%+9.9%
Portfolio Performance
Gross Performance Return(14.8%)+9.7%+13.0%
Benchmark Index¹(10.4%)+6.4%+7.5%
1
Benchmark index : S&P Large Mid Cap/S&P Small Cap Index (hedged 50% to NZD)
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/
SIGNIFICANT RETURNS IMPACTING
THE PORTFOLIO DURING THE
QUARTER IN LOCAL CURRENCY
NETFLIX
-53
%
PAYPAL
HOLDINGS
-40
%
SIGNATURE
BANK
-39
%
AMAZON
-35
%
STONECO
-34
%
FOREIGN TAX COMPLIANCE ACT (FATCA) AND COMMON
REPORTING STANDARD (CRS)
As a result of the New Zealand Government agreeing to participate in the exchange of information with other jurisdictions under the
Foreign Tax Compliance Act (FATCA) and Common Reporting Standard (CRS), Financial Institutions are required to undertake due
diligence to determine the account holders’ jurisdiction of tax residence. All shareholders will have received a Tax Residency Self-
Certification form from Computershare depending on when they first purchased their securities. Please ensure you complete and return
this important document if you have not already done so. For more information please visit the IRD website: https://www.ird.govt.nz/
international-tax/exchange-of-information/crs/registration-and-reporting or contact Computershare if you are unsure of whether you
have completed your form.