MORPHIC ETHICAL EQUITIES FUND LIMITED — Fund Information / Factsheet 2020

Aug 11, 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 July 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*

			1 Month	3 Months		6 Months		1 Year	3 Years(p.a.)	ITD (p.a.)
	Morphic EthicalEquities Fund1		2.91%	6.47%		-1.85%		6.20%	7.71%	6.47%
	Index2		1.08%	3.51%		-6.83%		3.03%	10.88%	9.62%
*	Past Performance is	n	ot an indica	tion of futur		erforman	ce

• Past Performance is not an indication of future performance.

Ethical Investing in Focus

Morphic is a signatory to the Principles for Responsible Investing (PRI), a UN supported initiative to which over $100trn of Assets managed by over 3,000 managers, have signed up to. There are 6 principles regarding Environmental, Social and Governance assets of responsible investing, which can be read here.

Morphic, for the second year in a row, received the highest possible rating (A+), a rating that less than 1 in 3 signatories achieves.

This underscores our ongoing commitment to the highest standards of engagement and transparency within the Asset Management industry. Thanks to James Tayler, Head of ESG, for his ongoing work for us in this area.

Portfolio review

The Fund rose 2.9% in July, outperforming global markets which rose 1.1% in AUD terms. Global equities rose 5.1% in USD terms, as markets continued their rebound from March lows. Global markets are now up 44% off their March lows and sit just 4.8% below the all-time highs of February. The rise in the AUD dampened returns.

Emerging Markets resumed their “risk-on” leadership (+8.4%), with Asia Ex Japan (+7.5%) also rising strongly, both regions being helped by a falling USD. Japan lagged for the second month in a row (-1.6%) along with Europe (+3.7%).

Tech and Tech Hardware (+11.4%) topped the sector performance yet again and are the seemingly unstoppable forces with both up over 20% YTD. Likewise, Energy was the worst performing sector again (-2.3%) for the second month in a row despite the oil price rising over the month.

The Fund’s holding in French listed rail company, Alstom, was the largest positive contributor over the month. During the month, Alstom reported quarterly results that the market took positively. The Fund reduced its holding size with the stock rallying over 20% at one point in the month as the upside became more limited.

The second largest contributor was our position in NEC Corporation. The Fund owns NEC and Fujitsu for both ESG (Governance) and sector exposure to increased IT hardware expenditure and are “self-help” stories of improved capital management and governance. During July, the UK government announced that they would not be using Huawei for the provision of 5G network hardware, and NEC and Fujitsu have been mentioned as likely replacements.

The Fund’s largest detractor was the Open House and Iida sector neutral pair discussed last month (as a large contributor). Open House did a capital raising during the month to take advantage of buoyant capital markets, to pay down debt and raise cash for faster growth. The stock fell on this news. The Fund remains a holder.

Net Tangible Assets (NTA)
NTA value before tax3	$ 1.1732
NTA value after tax3	$ 1.1471

Investment Returns since inception[4]

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Past Performance is not an indication of future performance.

emerging view is that the USA is debasing their currency with large funding needs, but have pinned interest rates down, resulting in lower real interest rates. Reflective of this, the gold price surged to highs during the month. Whether this remains the case if COVID-19 cases increase globally into a risk off environment remains to be seen.

Lastly, it should be noted the breadth of stocks in the market that are rising has fallen further. For example, of the S&P 500 (the USA’s largest 500 stocks), the whole years gain has been driven by five stocks. Breadth this narrow is usually not a sign of a healthy market.

Cash levels remain broadly unchanged from last month, along with fund positioning. Higher frequency data, such as continuing claims have come in on the softer side.

Outlook

The trading range continues. Markets continue in their range, though right at the top of it now. The biggest change in markets is the view on the USD. An

The Fund is positioned more for “COVID-19 risk off” in stock positioning (via long Tech and education and short air travel) even if the net exposure isn’t as heavily positioned for that scenario as it was in March/April.

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Global Responsible Investors

Top 10 Active Positions

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Stocks	Position
Industry	Region
(Shorts)	Weighting
Information
Tencent	Asia Pacific	4.0%
Technology
Information
NEC Corp	Asia Pacific	2.8%
Technology
Cellnex	Telecom	Europe	2.6%
Information
Ciena	Corp	North America	2.6%
Technology
Alstom	Industrials	Europe	2.2%
Keysight	Industrials	North	2.2%
Technologies	America
Information
Fujitsu	Asia Pacific	2.2%
Technology
Sundrug	Pharmaceuticals	Asia Pacific	2.0%
Sugi	Pharmaceuticals	Asia Pacific	2.0%
Techtronic	Information	Asia Pacific	1.9%
Industries	Technology

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Top three alpha contributors[10 ] (bps)

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Alstom	42	bps
NEC Corp	29	bps
Fujitsu	21	bps

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Top three alpha detractors[10 ] (bps)

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Open House Co	-28 bps
Keysight Technologies	-14 bps
Ping An Healthcare	-13 bps

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Risk Measures
Net Exposure	[5]	96%
Gross Exposure	[6]	122%
VAR	[7]	2.19%
Upside Capture	[8]	74%
Downside Capture	[8]	79%
Best Month	5.51%
Worst Month	-6.49%
Average Gain in Up Months	2.24%
Average Loss in Down Months	-2.13%
Annual Volatility	9.50%
Index Volatility	11.04%

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

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Key Facts

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ASX code / share price	MEC / 0.955
Listing Date	3 May 2017
Management Fee	1.25%
Performance Fee	[11]	15%
Market Capitalisation	$ 50m
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 51.8% Information Technology 30.7%Communication Services 17.3%Asia Pacific 29.8% Consumer Discretionary 11.5%Industrials 10.6%Western Europe 15.9%Health Care 8.7%Africa / Middle East 0.8% Morphic Ethical Financials 7.7% Morphic EthicalEquities Fund Equities FundConsumer Staples 5.5%Central Asia 0.7%Benchmark Materials 3.3% BenchmarkSouth & Central America 0.6% Real Estate 3.1%Utilities 2.2%0.4%Eastern Europe -0.4%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