MORPHIC ETHICAL EQUITIES FUND LIMITED — Fund Information / Factsheet 2021

Apr 18, 2021

==> picture [40 x 41] intentionally omitted <==

==> picture [66 x 58] intentionally omitted <==

==> picture [66 x 46] intentionally omitted <==

==> picture [106 x 39] intentionally omitted <==

M o r p h i c FundObjective E t h i c a l The Morphic Ethical Equities Fund Limited (the Fund) seeks to provide investors a way to grow their E q u i t i e s wealth and feel confident they do so without investing in businesses that harm the environment, F u n d people, and society. Monthly Report The Fund excludes direct investments in entities involved in environmental destruction, including March 2021 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*	Investment returns*	Investment returns*	Investment returns*	Investment returns*	Investment returns*	Investment returns*
Morphic Ethical Equities Fund1	1 Month	3 Months	6 Months	1 Year	3 Years (p.a.)	ITD (p.a.)
	2.78%	12.66%	19.46%	31.47%	10.52%	10.72%
Index2	4.36%	5.94%	12.86%	24.23%	12.34%	12.08%
* Past Performance is not an	indication of future erformance

• Past Performance is not an indication of future performance.

Ethical Investing in Focus

Supply chains are complex and challenging to assess. This is an ongoing ESG issue that investors and corporates are focused on to ensure that values of the company are aligned for all stakeholders. The recent move by the EU, US, UK and Canada to impose sanctions on Chinese officials for alleged human rights abuses in Xinjiang, China has lead multinationals, including H&M and Nike, to reassess their supply chains, specifically relating to cotton sourced from Xinjiang. The Better Cotton Initiative (BCI), a global not-for-profit organisation and the leader in the largest cotton sustainability programme in the world, announced in 2020 that it would no longer source cotton from Xinjiang on the basis of concerns over forced labour.

Supply Chain management is an increasing business risk and opportunity for corporates. A transparent, measurable and systemised approach to supply chain management helps to align a company’s approach to ESG beyond their employers and local environment, including those who are working within the supply chains in which they operate. All industries and services sector companies need to ensure business continuity and manage risks associated with their portfolios of suppliers, which can be spread across many different geographies. In our portfolio some of our companies either facilitate active supply chain management, provide diverse supply chain footprints or take an active role in identifying and eliminating sourcing from high risk regions.

==> picture [247 x 320] intentionally omitted <==

----- Start of picture text -----

Net Tangible Assets (NTA)
NTA value before tax [3] $ 1.3824
NTA value after tax [3] $ 1.3041
Investment Returns since inception [4]
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%
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 Sep-20 Nov-20 Jan-21 Mar-21
----- End of picture text -----

Portfolio review

Despite covid-19 cases rising in parts of the US and Europe, Global equities turned in another solid month during March as accelerated vaccine roll outs, further US fiscal stimulus announcements and continued dovish remarks from the US Federal Reserve fuelled risk appetites. The Biden Administration passed the much anticipated $1.9tr “American Rescue Plan Act” which will see a further USD$1,400 to be deposited into eligible individual bank accounts over the coming weeks.

Additionally, President Biden unveiled the first phase of the Democrats’ Infrastructure package dubbed “The American Jobs Plan” with >USD$2tr aimed at building world class transportation infrastructure, ensuring access for all to clean drinking water and broadband while investing in R&D, manufacturing and small business initiatives to name a few. This stimulus, coupled with easy Monetary policy and consumer balance sheets which, on aggregate, have never been in better shape, provides an unprecedented backdrop to a potentially strong economic cycle which has not been experienced for some time.

==> picture [88 x 42] intentionally omitted <==

Global Responsible Investors

With the caveat of continued vaccine progress, the cyclical rebound could surprise to the upside as pent-up demand from consumers and governments seem concurrent. The key bogey here continues to be inflation as we continue to hear of tightness in supply chains and rising input costs which will need to be passed through to the end consumer. Right now, the market expects the inflationary impact to be transitory and while we have no edge on this, the question will be how the market reacts when we see upside surprises to inflation prints over the coming months.

The Morphic Ethical Equities Fund increased 2.78% net during the month with positive equity performance augmented by a weaker Aussie dollar. The MSCI All Countries World Index (AUD) Index increased by 4.36% over the same period.

As at the end of March 2021 , the Funds profit reserve was 27.1 cents per share .

The portfolio’s top three contributors Tempur Sealy, Techtronic and Assurant added 109bps to performance, while Option Care Health, LivePerson and New Oriental Education detracted 184bps. The Fund had nine portfolio companies reporting quarterly results or trading updates in March and we highlight a couple here:

Kion Group is the #1 player globally in providing automated supply chain solutions with its Dematic business and #2 player globally in forklift trucks and warehousing equipment with brands such as Linde and Still. Kion delivered solid full year results in early March while providing an upside surprise in relation to its Supply Chain Solutions (SCS) business. SCS’s order book is being driven by e-commerce trends with automation and robotics likely the key drivers going forward. Forklifts are expected to rebound after a very tough year in 2020 as customers resume capital equipment spending following a freeze during the pandemic. After a strong run since our purchase in June 2020, we see the stock now approaching fair value and will look to trim on further strength.

Option Care Health reported results slightly ahead of its pre-announced earnings with Q4 revenue up 11.6% and EBITDA increasing just under 30%. The quarterly results took full year revenue to just over $USD3bn with EBITDA coming in at $USD221.7m. Management provided solid guidance for the upcoming year with high single digit revenues expected to drive mid-teens earnings growth. As the largest independent provider of in-home infusion services with double digit earnings growth for the foreseeable future, trading at a substantial discount to intrinsic value, we continue to hold the stock as one of our larger positions.

STOCK IN FOCUS: PVH Corp (PVH US, $7.4b Market Cap)

==> picture [47 x 40] intentionally omitted <==

PVH owns two of the world’s strongest apparel brands in Tommy Hilfiger and Calvin Klein with pre-pandemic sales close to $10bn. In terms of gross retail sales before the pandemic hit, Calvin Klein generated $USD9.4bn while Tommy delivered an additional $USD9.2bn for a total of $USD18.6bn. PVH owns other brands included in its Heritage division such as Van Heusen and IZOD however Management is looking to rationalise this division through corporate restructure to focus on its two leading horses:

==> picture [169 x 36] intentionally omitted <==

==> picture [218 x 29] intentionally omitted <==

As part of its succession plan PVH announced in mid 2019 that Stefan Larsson was appointed to the newly created role of President, with the responsibility for managing PVH’s branded businesses and regions, with each of the three brand CEOs and the Regional Presidents reporting to him. Mr. Larsson was most recently Chief Executive Officer of Ralph Lauren Corp., where he successfully refocused the company on improved performance and future growth. Consequently in February 2021, PVH announced that Mr.Larsson had formally become its new CEO with outgoing CEO, Manny Chirico staying on as Chairman of the Group. We consider the combination will focus on building on its core brand strengths while minimising distraction from underperforming categories.

PVH is also very focused on optimising its supply chain with a focus on sustainability, stating in its Annual Report: We maintained our commitment to sustainability and circularity by seeking to reduce waste and pollution, as we recognize that our business has a direct impact on the environment and communities where we operate. Its words have been matched by actions with PVH named as one of the two leading companies by Platform Living Wage Financials for its efforts to advance living wage payments for supply chain workers.

The global pandemic had a disastrous effect on sales last year as many of its own retail stores and wholesale partners were closed (with some remaining so today) over the period. Like many companies with strong brands it was able to leverage digital sales which increased 40% and now represent about a quarter of the Group.

While visibility is still limited and some stores are currently closed in Europe, Management expects its international business to exceed 2019 pre-pandemic levels within the first half of this year. North America will remain challenged as international tourism will take time to recover however when combining both positives and negatives, it sees revenues growing 22%-24% this year with EPS improving to about $6.00 per share compared to a loss of close to $2.00 last year.

We expect PVH to get back to its earnings trend in the next 12-18 months and deliver close to $10.00 per share in EPS. This would place the business on a prospective PE of around 10x which compares well with its historical multiple which has been consistently around 14x. CEO Stefan Larsson will also be hosting an Investor Day in the coming months which will focus on the long-term plan for growth and potentially provide a further catalyst for the shares.

==> picture [88 x 42] intentionally omitted <==

Global Responsible Investors

Top 10 Active Positions

Stocks (Shorts)	Industry	Region	Position Weighting
PTC Inc	Information Technology	North America	5.25
Flex
	Information Technology	North America	4.76
Option Care Health	Health Care	North America	4.28
Techtronic Industries	Industrials	North America	4.23
Bureau Veritas	Industrials	Europe	4.13
Anritsu	Information Technology	Europe	3.94
SEB	Consumer Discretionary	Europe	3.80
Sensata	Industrials	North America	3.74
Comerica	Financials	North America	3.50
Cellnex	Communication Services	Europe	3.45

	Risk Measures
Net Exposure5		90.49%
Gross Exposure6		97.04%
VAR7		2.26%
Best Month		8.60%
Worst Month		-6.49%
Average Gain in Up Months		2.36%
Average Loss in Down Months		-1.47%
Annual Volatility		9.67%
Index Volatility		10.65%

Top three alpha contributors[8 ] (bps)

==> picture [231 x 74] intentionally omitted <==

----- Start of picture text -----

Tempur Sealy 39 bps
Techtronic 36 bps
Assurant 34 bps
----- End of picture text -----

Top three alpha detractors[8 ] (bps)

==> picture [231 x 73] intentionally omitted <==

----- Start of picture text -----

New Oriental - 78 bps
LivePerson Inc -58 bps
Option Care Health - 48 bps
----- End of picture text -----

	Key Facts
ASX code / share price		MEC / 1.10
Listing Date		3 May 2017
Profit Reserve9		$ 0.271
Management Fee		1.25%
Performance Fee10		15%
Market Capitalisation		$ 58m
Shares Outstanding		52,953,469
Dividend per share11		$0.025

Equity Exposure Summary By region

Equity Exposure Summary By sector

==> picture [484 x 163] intentionally omitted <==

----- Start of picture text -----

North America 56.8% Industrials 28.2%
Information Technology 23.4%
Western Europe 24.8% Consumer Discretionary 14.6%
Financials 12.6%
Asia Pacific 12.2%
Communication Services 3.5%
Central Asia 0.0% Morphic EthicalEquities Fund Consumer Staples 2.0% Morphic Ethical EquitiesFund
Health Care 4.3%
South & Central America 0.0% Benchmark Benchmark
Real Estate 2.3%
Africa / Middle East 0.0% Materials 3.0%
Utilities 0.0%
Eastern Europe 0.0% Energy 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 -----

==> picture [88 x 42] intentionally omitted <==

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 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;[11] Annual dividend per share.

==> picture [88 x 42] intentionally omitted <==

Global Responsible Investors