MLN – March 2023 Quarterly Newsletter

1
A strong rebound in quarter one
Marlin’s gross performance for the quarter was up 11.7% and the adjusted
NAV was up 11.0%, while our global benchmark which was up 6.4%.
Global market backdrop
There was a lot going on in global markets in the first quarter. A key indicator
of market volatility and fear, the VIX index, spiked to six-month highs in early
March and ended the month near 12-month lows. The concerns around the
US banking sector was a major contributor to this spike in investor concern
in the month.
This elevated uncertainty and banking sector concern caused investors
to lower their expectations for further interest rate hikes by the US Federal
Reserve. At the start of the month, the market was expecting another four
rate hikes, with the fed funds rate expected to peak at 5.5%. By the end
of the month, the market was expecting a peak of less than 5%, with sharp
rate cuts to begin in the second half of 2023.
Alongside these interest rate moves, companies with strong balance sheets
(i.e., no or low levels of debt) began to outperform companies with low
quality balance sheets by as much as 10% intra-month as investors became
concerned about a possible credit crunch and resultant growth slowdown.
US big-tech companies were a major driver of market performance in the
first quarter – partly due to their strong balance sheets, but also due to falling
interest rates (which favour growth companies) and some positive corporate
updates.
Portfolio update
The biggest contributors to the fund’s outperformance for the quarter
were our positions in Chinese technology holdings, Alibaba and Tencent,
combined with some of our US technology names and Floor and Décor.
Offsetting these performance drivers were losses from our banking holdings.
Alibaba (+16% for quarter) announced it would be restructuring its business
into six separate business units and will explore listings or fundraisings for
all of them apart from the core ecommerce platform. This was received
positively by the market as the value of businesses such as Alibaba Cloud
and Cainiao Logistics were not being reflected in the current share price.
This should also allow these smaller businesses to be more focussed and
nimble outside of the larger corporate structure. Meanwhile, our other
Chinese holding Tencent (+22%) reported strong results as it benefited from
a recovery in the Chinese economy following the end of lockdowns, coupled
with continued execution in its strategic growth areas such as short video
advertising and global gaming.
Alphabet (+18%)/Microsoft (+21%): While the gains in these companies
share prices are largely attributable to gains in the broader tech sector,
public interest in artificial intelligence (AI) has been supercharged recently by
ChatGPT, an AI-powered chatbot, which has resulted in these companies
getting a lot of press in the quarter.
Floor & Décor (+41%). A long growth runway, an overly negative
consensus and the ability to prosper at the expense of competitors in a
downturn gave us confidence to buy in the midst of a housing downturn.
Floor & Décor (FND) is a leading specialty retailer in the hard surface flooring
market, with a focus on offering high-quality products at affordable prices.
FND operates in a fragmented and large market for hard surface flooring,
estimated to be around $40-$50 billion. Compared to $4.3b of FND revenue
the company’s current market share is only about 10-11%, providing
significant opportunities for the company to capture additional market share.
To do this, FND is expanding its store base in the US, with a goal of opening
around 30+ new stores per year. As of the end of 2022, Floor & Decor
operated 191 stores in the US, and we think there is room for at least 400
stores in the long term. The company’s expansion plans are supported by
favourable store economics, strong store-level performance, and a long-term
trend of consumers preferring hard flooring over carpet.
We exited First Republic Bank and Signature Bank during the quarter.
Following the collapse of Silicon Valley Bank on the afternoon of Friday
10th March, fears of further bank failures saw depositors exit other regional
banks, resulting in one of our portfolio holdings, Signature Bank, being closed
by regulators on Sunday 12th March, and another portfolio holding, First
Republic, left on the verge of failure.
The closure of Signature Bank was driven by a combination of the fastest Fed
hiking cycle in history, the collapse of Silicon Valley Bank, and a subsequent
loss of confidence in regional banks. The pace of the deposit outflows was
also extreme, in this modern era of near-instant bank transfers.
This was very hard to predict in advance. Unlike many other bank failures
– this wasn’t primarily a lending or credit issue. It was instead a crisis of
confidence underpinned by Silicon Valley Bank’s customer base and a
mismanagement of investment assets. As fears spread following the collapse
of Silicon Valley Bank, people got scared and looked for other possible areas
of risk in the banking system; especially banks with high levels of uninsured
deposits including Signature Bank and First Republic.
Signature Bank and First Republic had the attributes of the high-quality
businesses we look for. These were well-managed banks, with differentiated
business models that allowed them to take market share over the last
twenty years. On a fundamental basis, Signature Bank and First Republic
were different businesses than Silicon Valley Bank. They did not have the
same customer concentration, nor the mismanagement of the duration on
investment securities.
In a banking crisis, fundamentals take a back seat to emotions and
sentiment. While we can assess fundamentals; it is much more difficult to
forecast sentiment.
We have no remaining bank positions.
Gartner (-3%) has lagged the market this quarter after strong
outperformance last year. More recently the market has been concerned
about a macro slow-down impacting Gartner’s more cyclical businesses:
being research for small start-up software companies, particularly given
concerns around the wider start-up funding environment; and the IT
consulting business. These two segments make up around 15% of revenues
and following recent underperformance, a slow-down in these businesses is
largely priced. The core research and conference segments continue to grow,
so we took advantage of the weakness in March and added to the position.
We exited StoneCo (-6%) during the quarter. In-line with our investment
thesis, the company has been successful in reaching double-digit market
share in the Brazilian payments market. We believe the easy market share
gains have been made with StoneCo’s pricing advantage and distribution
strategy now being matched by competitors. From here it will be increasingly
difficult for the company to gain market share, likely resulting in more capital
intensity and lower returns on capital as a result.
¹
Share price discount to NAV (including warrant price on a pro-rated basis and using the net asset value per share, after expenses, fees and tax, to four decimal places).
as at 31 March 2023
1 January 2023 – 31 March 2023
MLN NAVDISCOUNT
1
$
0.871.4
%$
0.85
Share Price
QUARTERLY NEWSLETTER
Sam Dickie
Senior Portfolio Manager
Fisher Funds Management Ltd
14 April 2023
Warrant Price
$
0.02

PERFORMANCE
as at 31 March 2023
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
Email: enquire@marlin.co.nz | www.marlin.co.nz
Headquarters Company
%
Holding
China
Alibaba Group3.6%
Tencent Holdings4.4%
Ireland
Icon5.9%
United Kingdom
Greggs Plc4.5%
United States
Alphabet8.3%
Amazon.Com8.3%
Boston Scientific5.7%
Dollar General2.9%

Dollar Tree2.4%
Edwards Lifesciences Corp.4.4%

Floor & Décor Holdings7.0%
Gartner Inc4.5%
Mastercard4.2%
Meta Platforms Inc7.0%
Microsoft5.5%
Netflix3.8%
NVR Inc3.3%
PayPal Holdings5.0%
salesforce.com5.8%
Equity Total96.5%
New Zealand dollar cash0.8%
Total foreign cash2.9%
Cash Total3.7%
Forward Foreign Exchange(0.2%)

TOTAL100.0%
PORTFOLIO HOLDINGS
SUMMARY
as at 31 March 2023
COMPANY NEWS
If you would like to receive future
newsletters electronically please email us
at enquire@marlin.co.nz
Dividend Paid 24 March 2023
A dividend of 1.66 cents per share was paid to Marlin
shareholders on 24 March 2023, 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(3.9%)+11.3%+10.5%
Adjusted NAV Return +11.0%+8.6%+7.5%
Portfolio Performance
Gross Performance Return+11.7%+12.2%+10.5%
Benchmark Index¹+6.4%+15.0%+7.1%
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 percentage change in the adjusted NAV value,
»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
META
PLATFORMS
+76
%
SALESFORCE
+51
%
FLOOR &
DÉCOR
+41
%
FIRST REPUBLIC
BANK
-74
%
SIGNATURE
BANK
-100
%
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 dili-
gence to determine the account holders’ jurisdiction of tax residence. If shareholders have not previously self-certified, they will receive
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.