MORPHIC ETHICAL EQUITIES FUND LIMITED — Fund Information / Factsheet 2021

Oct 13, 2021

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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.

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.

Monthly Report September 2021

		Investment returns*	Investment returns*
		1 Month3 Months	6 Months	1 Year	3 Years(p.a.)	ITD (p.a.)
	Morphic EthicalEquities Fund1	-3.22%3.07%	11.10%	32.73%	13.41%	12.08%
	Index2	-3.00%2.84%	12.04%	26.45%	12.64%	13.53%
*	Past Performance is	not an indication of futur	performan	ce

• Past Performance is not an indication of future performance.

		Net Tangible Assets (NTA)
NTA	value	before tax3	$ 1.5047
NTA	value	after tax3	$ 1.3797

ESG IN FOCUS

The 26[th] summit of the “Conference of the Parties” (COP26) will be held in Glasgow during the first couple of weeks in November. There will be a great deal of headlines around the event as it is becoming increasingly evident that the risk of climate change, or actually the consequence of not addressing this risk, is now a priority concern globally.

Investment Returns since inception[4]

The Paris Agreement was borne out of COP21 in 2015 where attending countries committed to plans in setting out how much they would reduce carbon emissions, with a goal of limiting global warming to below 2 degrees and aim for 1.5 degrees. Unfortunately, these commitments are not proving sufficient as we are running closer to 2 degrees and potentially up to 3 degrees by 2100 compared with preindustrial levels.

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Given our run rate and the urgency in addressing this, COP26 is focused on four key objectives:

1. Secure global net zero by mid-century and keep 1.5 degrees within reach by accelerating the phase out of coal, curtailing deforestation, accelerating the shift to electric vehicles and encouraging investment in renewables.

2. Adapt to protect communities and natural habitats thereby protecting and restoring ecosystems while building defences, warning systems and resilient infrastructure to avoid loss of homes and potentially lives.

3. Mobilise finance with developed countries earmarking at least $100bn of climate finance per year while international financial institutions co-ordinate in unleashing trillions in private and public financing vehicles.

4. Work together to deliver and finalise the Paris Rulebook while accelerating collaborative actions between governments, business and society in addressing the climate crisis.

Bed Bath and Beyond reported disappointing sales and earnings as moderating end markets coupled with Management execution issues weighed on the quarter. This result reversed the strong execution track record we had been witnessing over the past few quarters as marketing and pricing actions fell behind. We have materially trimmed the position and will look to discuss the longer term prospects with the company in the coming weeks.

PORTFOLIO COMMENTARY

The Morphic Ethical Equities Fund declined 3.22% net during the month which was slightly behind the MSCI All Countries World Index (AUD) which slipped 3.00% over the same period. The market focus has shifted from the Delta variant impact on growth to supply chain holdups (bottlenecks and shortage of pretty much everything), input cost inflation (commodities, energy and labour) and the potential for a Fed misstep, just to name a few.

Ciena delivered a good set of numbers with revenue coming in above the top end of its guided range while strong margin growth drove earnings some 16% ahead of the street. Secular demand in network investment is very strong as customers add capacity to address bandwidth demand. Backlogs are expected to expand as supply chain constraints limits its ability to deploy its kit. Fortunately, this demand is not going away, only getting more intense, as data growth continues unabated.

The portfolio’s top three contributors for the month Webster Financial, Advantest and Willscot Mobile Mini added 99bps to performance while Sensata, Travis Perkins and Bed Bath and Beyond detracted 174bps . The Fund had two portfolio companies report results during the month with the majority expected in October and November.

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Global Responsible Investors

STOCK IN FOCUS: TKH Group (TWEKA NA, €2.4bn Market Cap)

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TKH Group operates on a global scale, providing high end niche technologies in high growth markets around the world. Over the past several years it has shifted its portfolio from commoditized products to that of integrated solutions increasing the efficiency, safety and security of its customers. Its products are often embedded with software to create smart technologies in a one stop shop approach. With seven identified verticals expected to deliver outsized growth at incremental margins, the key ones to us include fibre optic cables, energy cables for infrastructure and wind farms, 3D vision technology for machine vision/5G consumer electronics and tyre manufacturing systems.

These growth verticals have a common platform underpinned by its three core technologies which are leveraged across many solutions:

1. Vision and Security – Consists of 2D and 3D camera sensor technology and 3D laser technology. We understand TKH is the global leader in the more specialised 3D camera applications inspecting 5G phones etc. Vision technology is used for inspection, quality, product and process control in medical solutions, industrial automation (think Industry 4.0) and consumer electronics.

2. Connectivity – Focuses on a complete portfolio of cable systems for energy distribution (offshore wind farms) and electrical applications in medical, construction and infrastructure sectors.

3. Smart Manufacturing – With technology and controls around industrial process it boosts the reliability and flexibility of manufacturing systems in tyre manufacturing, robotics, medical and mechanical engineering industries.

The business is organised into three key reporting segments with Building and Industrial applications representing the bulk of its €1.4bn of revenues expected this year:

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Source: TKH.

Telecom is predominately made up of fibre optic cables and network solutions serving the European markets. It is really benefiting from fibre to the home (FTTH) rollouts in Germany and France.

TKH’s building division houses its Machine Vision segment which is really benefiting from factory automation, logistics and strong orders in consumer electronics. Additionally, with the increased demand in offshore wind farms , TKH is seeing strong order intake for its offshore subsea cables which effectively link up the turbines to each other to transfer energy. It is also seeing a promising sales funnel for its Aircraft Ground Lighting (AGL ) business which is a category disruptor in next generation runway lighting and is already installed in Vancouver, Geneva and Amsterdam airports.

Industrial is largely comprised of its VMI Tire manufacturing system business which is pioneering new technologies to address just in time requirements associated with multiple tyre SKUs as well as those associated with electric vehicles. It has approximately 70% global market share outside the top 5 (in which it is increasing its presence) and will benefit from the replacement of existing technology (1215yrs old) with high productivity, waste reduction, quality improvement and “track and trace” capabilities of its systems. Another exciting business within its Industrial segment is Indivion which is a fully automated medical dosage system utilising its machine vision capabilities in dispensing repeat prescriptions. It is a one-of-a-kind system globally with all the large online and bricks and mortar pharmacy companies lining up for the product.

TKH delivered strong first half results in late August and provided full year guidance which was well ahead of market expectations. It is continuing on a “Simplify and Accelerate” strategy which is focused on pruning its portfolio to concentrate on its high growth verticals and will expand on this during its Investor Day on 17[th] November 2021. We have owned the business for just over 3 years now and are actually more intrigued by the story today than at any time of our ownership.

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Global Responsible Investors

Top 10 Active Positions

Stocks (Shorts)	Industry	Region	PositionWeighting
WebsterFinancial	Financials	North America	5.22%
Sensata	Industrials	North America	5.14%
Tempur Sealy	ConsumerDiscretionary	North America	4.76%
WillScotMobile Mini	Industrials	North America	4.67%
XPO Logistics	Industrials	North America	4.50%
Flex	InformationTechnology	North America	4.45%
PVH Corp	ConsumerDiscretionary	North America	4.09%
Bureau Veritas	Industrials	Europe	3.71%
Anritsu	InformationTechnology	Japan	3.58%
Option CareHealth	Health Care	North America	3.56%

Risk Measures
Net Exposure5	86.10%
Gross Exposure6	97.67%
VAR7	1.50%
Best Month	8.60%
Worst Month	-6.49%
Average Gain in Up Months	2.43%
Average Loss in Down Months	-1.57%
Annual Volatility	9.80%
Index Volatility	10.46%

Top three alpha contributors[8 ] (bps)

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----- Start of picture text ----- Webster Financial 37 bpsAdvantest 33 bpsWillScot Mobile Mini 30 bps----- End of picture text -----

Top three alpha detractors[8 ] (bps)

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----- Start of picture text ----- Sensata -39 bpsTravis Perkins -44 bpsBed Bath and Beyond -90bps----- End of picture text -----

	Key Facts
ASX code / share price		MEC / 1.295
Listing Date		3 May 2017
Profit Reserve9		$ 0.386
Management Fee		1.25%
Performance Fee10		15%
Market Capitalisation		$ 69m
Shares Outstanding		53,050,432
Dividend per share11		$0.025

Equity Exposure Summary By region

Equity Exposure Summary By sector

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----- Start of picture text ----- North America 68.4% Industrials 35.8%Information Technology 24.3%Western Europe 17.3% Consumer Discretionary 10.4%Asia Pacific 6.1% Financials 12.3%Health Care 3.6%Central Asia 0.0% Morphic Ethical Real Estate 2.9% Morphic EthicalEquities Fund Equities FundCommunication Services 1.3%South & Central America 0.0% Benchmark BenchmarkMaterials 1.2%Africa / Middle East 0.0% Energy 0.0%Utilities 0.0%Eastern Europe 0.0% Consumer Staples 0.0%-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

Investor Relations Phone: +61 2 9021 7701 Email: info@ellerstoncapital.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] Attribution; relative returns against the Index excluding the effect of hedges;[9] The reserve is made up of amounts transferred from current and retained earnings that are preserved for future dividend payments. The payment of franked dividends depends on the rate the Fund realises taxable profits and generates franking credits;[10] The Performance Fee is payable annually in respect of the Fund’s outperformance of the Index. Performance Fees are only payable when the Fund achieves positive absolute performance and is subject to a high water mark;[11] Annual dividend per share.

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Global Responsible Investors