MORPHIC ETHICAL EQUITIES FUND LIMITED — Fund Information / Factsheet 2020

Sep 9, 2020

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Fund Objective

The Morphic Ethical Equities Fund Limited (the Fund) seeks to provide investors a way to grow their wealth and feel confident they do so without investing in businesses that harm the environment, people, and society.

Monthly Report August 2020

The Fund excludes direct investments in entities involved in environmental destruction, including coal and uranium mining, oil and gas, intensive animal farming and aquaculture, tobacco and alcohol, armaments, gambling and rainforest and old growth logging.

Investment returns*

Morphic EthicalEquities Fund1	1 Month	3 Months	6 Months	1 Year	3 Years(p.a.)	ITD (p.a.)
	1.39%	4.04%	2.58%	7.68%	8.24%	6.74%
Index2	2.91%	3.49%	0.45%	6.16%	11.56%	10.31%
* Past Performance is	ot an indication of future erformance

• Past Performance is not an indication of future performance.

Ethical Investing in Focus

In its continued trend of breaking with the rest of the world, the Trump administration last month had the Department of Labor propose new rules that would discourage pension (superannuation) plans in the USA from considering Environmental, Social and Governance (ESG) issues when picking investments.

This is despite research that shows that more than 70% of American investors were interested in ethical investing and the increasing amounts of academic evidence supporting the role of ESG within the investment process.

Thankfully American companies continue to push ahead with improving both disclosure and efforts towards sustainability, despite their government’s efforts, rather than because of them.

Portfolio review

The Fund rose 1.4% in August, underperforming global markets which rose 2.9% in AUD terms. Global equities rose 6.0% in USD terms, as markets continued their rebound from March lows. Global markets have now recouped all their COVID-19 related losses to make new all-time highs in August. Something that felt implausible in the depths of March. The rise in the AUD dampened returns.

Japan rebounded from its laggard status of July to lead markets in August (+7.6%), whilst the USA was not far behind (7.3%). Asia Pacific (+3.6%) and Emerging Markets (2.1%) lagged.

For the third month, Tech hardware (+12%) was near the best performing sector, with Utilities (-2%) struggling as the market was led by cyclical sectors over the month.

The Fund’s holding in Techtronic, the owner of the Ryobi brand of power-tools, was the best performing stock over the month. The company has been the beneficiary of the stay at home DIY trend of COVID-19 lockdowns globally. The Fund accumulated during the March sell off and the results were ahead of even our optimistic forecasts. With the stock up 15% since results, the Fund has reduced its holding but will look to add on pullbacks.

Having been a large contributor in the prior month, NEC gave back some of it’s performance post quarterly earnings results. The market was disappointed that management appears to have been overly optimistic and walked back on some its prior bullish comments. There was also little news on both capital management and 5G growth. The Fund remains a holder, with hopefully the upcoming capital markets day to provide more colour to investors on these areas.

Outlook

It is worth noting the continued narrowness of the market moves we are seeing at the moment. One way to measure this is looked at an equal weight index (SPW – where every stock is given the same size) versus the usual market cap weighted one (SPX) as a way to measure “breadth”. In August, the SPW trailed the SPX by the largest margin since June 2000, and 9[th] largest margin since 1990.

		Net Tangible Assets (NTA)
NTA	value	before tax3	$ 1.1843
NTA	value	after tax3	$ 1.1589

Investment Returns since inception[4]

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----- Start of picture text ----- 25.00%20.00%15.00%10.00%5.00%0.00%-5.00%May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20----- End of picture text -----

Past Performance is not an indication of future performance.

2000 US stock names put together, having only been 50% of the Russell’s size just last year. This narrowness makes stock selection even more challenging than usual when there are so few stocks outperforming the market.

This would be more palatable as a fundamental investor if Apple earnings forecasts were rising rapidly. They are not. Instead, Apple’s P/E has gone from 22x in May to 35x today. Extreme re-rating of earnings (faster than the 1999 bubble) is not the foundation of long term bull markets.

Put together, these are some of the unsavoury statistics that give rise to comparisons with 1999/2000. The following years were not kind to investors.

What is different to then, is that the US Dollar is weakening rapidly as the Federal Reserve, rather than take away the punchbowl, is encouraging more. As such calling the end is likely to be an expensive and unsatisfying exercise.

Cash levels remain broadly unchanged from last month, along with Fund positioning.

Or another one: the market cap of Apple is now more than the Russell Index of

Global Responsible Investors

Top 10 Active Positions

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Stocks	Position
Industry	Region
(Shorts)	Weighting
Information
Fujitsu	Asia Pacific	3.3%
Technology
Information
NetEase	Asia Pacific	3.3%
Technology
Cellnex	Telecom	Europe	3.3%
New Oriental	Consumer
Asia Pacific	2.8%
Education	Discretionary
NEC Corp	Information	Asia Pacific	2.7%
Technology
Information
Tencent	Asia Pacific	2.5%
Technology
Alstom	Industrials	Europe	2.1%
Keysight	Information	North	2.1%
Technologies	Technology	America
Techtronic	Industrials	Asia Pacific	1.9%
Industries
Joyoung	Consumer	Asia Pacific	1.8%
Discretionary

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Top three alpha contributors[10 ] (bps)

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Techtronic Industries	28	bps
Open House Co	20	bps
LiveRamp	20	bps

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Top three alpha detractors[10 ] (bps)

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----- Start of picture text ----- NEC Corp -33 bpsTencent -29 bpsAnritsu -26 bps----- End of picture text -----

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Risk Measures
Net Exposure	[5]	98%
Gross Exposure	[6]	114%
VAR	[7]	3.00%
Upside Capture	[8]	73%
Downside Capture	[8]	79%
Best Month	5.51%
Worst Month	-6.49%
Average Gain in Up Months	2.21%
Average Loss in Down Months	-2.13%
Annual Volatility	9.39%
Index Volatility	10.96%

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Hedge Positions	Risk Limit Utilisation (%)	[9]
None

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Key Facts
ASX code / share price	MEC / 0.98
Listing Date	3 May 2017
Management Fee	1.25%
Performance Fee	[11]	15%
Market Capitalisation	$ 52m
Shares Outstanding	52,871,147
Dividend per share	[12]	$ 0.02

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Equity Exposure Summary By region

Equity Exposure Summary By sector

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----- Start of picture text ----- North America 47.1% Information Technology 32.0%Communication Services 13.1%Asia Pacific 33.9% Consumer Discretionary 10.4%Industrials 12.3%Western Europe 16.7%Health Care 9.8%Africa / Middle East 0.8% Morphic Ethical Financials 8.7% Morphic EthicalEquities Fund Equities FundConsumer Staples 4.7%Central Asia 0.7%Benchmark Materials 3.2% BenchmarkSouth & Central America 0.5% Real Estate 3.3%Utilities 2.5%0.3%Eastern Europe -0.2%Energy-10.0% 10.0% 30.0% 50.0% 70.0% -5.0% 5.0% 15.0% 25.0% 35.0%----- End of picture text -----

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Global Responsible Investors

Contact us

Morphic Asset Management Pty Ltd Level 11, 179 Elizabeth St Sydney 2000 New South Wales Australia www.morphicasset.com

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Irene Kardasis Marketing & IR Manager Phone: +61 2 9021 7726 Email: ikardasis@morphicasset.com

This communication has been prepared by Morphic Ethical Equities Fund Limited (“MEC”) (ACN 617 345 123) and its Manager, Morphic Asset Management Pty Ltd (“Morphic”) (ACN 155 937 901) (AFSL 419916). The information contained in this communication is for information purposes only and is not investment or financial product advice and is not intended to be used as the basis for making an investment decision. Please note that, in providing this communication, MEC and Morphic have not considered the objectives, financial position or needs of any particular recipient. MEC and Morphic strongly suggest that investors consult a financial advisor prior to making an investment decision. No warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this communication. To the maximum extent permitted by law, none of MEC, its related bodies corporate, shareholders or respective directors, officers, employees, agents or advisors, nor any other person accepts any liability, including, without limitation, any liability arising out of fault or negligence for any loss arising from the use of information contained in this communication. If this communication includes “forward looking statements”, such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of MEC and its officers, employees, agents or associates that may cause actual results to differ materially from those expressed or implied in such statement. Actual results, performance or achievements may vary materially from any projections and forward-looking statements and the assumptions on which those statements are based. MEC and Morphic assume no obligation to update such information. This communication is not, and does not constitute, an offer to sell or the solicitation, invitation or recommendation to purchase any securities and neither this communication nor anything contained in it forms the basis of any contract or commitment. The Certification Symbol signifies that a product or service offers an investment style that takes into account environmental, social, governance or ethical considerations. The Symbol also signifies that Morphic Ethical Equities Fund adheres to the strict disclosure practices required under the Responsible Investment Certification Program for the category of Product Provider. The Certification Symbol is a Registered Trade Mark of the Responsible Investment Association Australasia (RIAA). Detailed information about RIAA, the Symbol and Morphic Ethical Equities Fund’s methodology, performance and stock holdings can be found at www.responsibleinvestment.org, together with details about other responsible investment products certified by RIAA. The Responsible Investment Certification Program does not constitute financial product advice. Neither the Certification Symbol nor RIAA recommends to any person that any financial product is a suitable investment or that returns are guaranteed.

1 Performance is net of investment management fees, before company admin costs and taxes; 2 The Index is the MSCI All Countries World Daily Total Return Net Index (Bloomberg code NDUEACWF) in AUD;[3] The figures are estimated and unaudited;[4] Performance is net of investment management fees, before dividends, company admin costs and taxes. Fund listing on the ASX 3 May 2017. Past performance is not an indication of future performance;[5] Includes Equities and Commodities - longs and shorts are netted;[6] Includes Equities, Commodities and 10 year equivalent Credit and Bonds - longs and shorts are not netted;[7] Based on gross returns since Fund’s inception;[8] As a percentage of the Fund’s Value at Risk (VaR) Limit;[9] As a percentage of the Fund’s Value at Risk (VaR) Limit;[10] Attribution; relative returns against the Index excluding the effect of hedges;[11] The Performance Fee is payable annually in respect of the Fund’s out-performance of the Index. Performance Fees are only payable when the Fund achieves positive absolute performance and is subject to a high water mark;[12] Annual dividend per share.

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Global Responsible Investors