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Marlin - Fees the Catch, Time to Release

Marlin is one of three listed unit trusts managed by Fisher Funds. Marlin offers NZ retail investors managed international equity exposure with a regular income stream.

FINANCIALS

Since 2012, Marlin has underperformed the benchmark index in three out of five years, which equates to under performance of -1.06% p.a. In addition, Marlin are paying out 2.4x their cash income received from dividends and interest as dividends to unit holders, an unsustainable strategy during times of adverse market movement.

Over the past year Marlin achieved total comprehensive income after tax and operating expenses of $3.57m, of which they paid-out $2.32m in dividends.

Marlin sold $14.1m of investments during the 6 months to FY 2016, and purchased additional investment valued at $15.1m. The additional funds were sourced from the exercise of warrants totalling $1.15m.

Asset turnover of 14.85% to produce a gross return of 5.3% for the 6 months to 31 December 2016 was disappointing, as the fund underperformed the benchmark by 5.6%. This year was not unusual for under performance. Marlin has underperformed the gross index they measure themselves against in three out of the past five years.

FEES

Marlin have a reasonably fixed management fee of 1.25% p.a. and a performance fee of 15%. The management fee can be reduced by 0.1% for every 1% of under performance relative to changes in the 90 Day Bank Bill Index. I believe the management fee is slightly.

The management fee can be reduced by 0.1% for every 1% of under performance relative to changes in the 90 Day Bank Bill Index. I believe the management fee is slightly excessive relative to the performance achieved since listing, and the performance fee target of the 90 Day Bank Bill Rate + 5% is low on a worldwide basis.

The bank bill rate is not a fair benchmark for the comparison of equity returns. Interest rates have dropped over the past 10 years, and thus Marlin’s benchmark has been dropping in the midst of a bullish share market. As you could expect, as interest rates drop, the cost of debt

for companies also drops, leading to higher earnings, which has had a positive effect on the share price.

The Graph below compares the 5 year Interest Swap rate with the NZ50 Gross Index on a common basis.

 

SUMMARY

Marlin has been a popular choice for NZ retail investors looking for overseas exposure, but the returns have been disappointing. A conservative benchmark, coupled with a bullish share market has delivered plain sailing for Marlin’s Management, but not for its investors.

A rising tide floats all boats, but when the tide goes out, you may find you’ve caught a spotty, instead of a marlin.

Filed under Newsletter \ Tom McBride

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