MORPHIC ETHICAL EQUITIES FUND LIMITED — Net Asset Value 2019

Mar 7, 2019

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2018 Finalist “New Fund of the Year”

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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 February 2019

Investment returns*	Investment returns*	Investment returns*	Investment returns*
Morphic Ethical EquitiesFund1	1 Month	3 Months	6 MonthsCYTD
	3.31%	2.95%	-3.87%6.64%
Index2	5.23%	5.70%	-1.32%9.62%
* Past Performance is not	n indication of future erformance

• Past Performance is not an indication of future performance.

Ethical Investing in Focus

Recent weeks have seen two successful investor engagements with large mining companies. Climate Action 100+, of which Morphic is a founding signatory, has been coordinating collective engagement with the world’s largest carbon-emitting listed companies. Glencore and Rio Tinto announced improved commitments to their climate-related responsibilities including greater focus on the commodities required to meet the needs of a lower carbon world, renewed emissions targets and improved reporting. Whilst the companies can clearly be more proactive, we recognise these changes in the right direction and the effectiveness of such investor engagement.

Portfolio review

The Fund rose 3.3% in February, underperforming global markets for the month (5.2%). The rally in global equities continued as they returned 2.5% in USD terms, with a fall in the AUD providing a tailwind to Australian investors.

During the month, the US (+3.1%) and Europe (+3.1%) outperformed. Asia Pacific ex-Japan (+2.1%) and Emerging Markets (+0.1%) underperformed global equities, with Japan (- 0.1%) the worst performer. The largest detractor for the month was our long position in freight forwarder Panalpina, giving back some of last month’s gains as markets become increasingly worried about the company’s defence against the bid. The second and third largest shareholders have publicly backed the bid, however, the charitable foundation which holds the Founders stake (46%), is trying to leverage the company’s corporate governance structure in order to support the Management’s desire to remain independent. Morphic has engaged with the Board of Directors, urging them to act in the interest of all shareholders and consider all risks.

The Fund’s largest contributor was the position in rail equipment manufacturer Alstom, partially recovering last month’s losses. Despite the EU Competition Commissioner blocking Alstom’s merger with peer Siemens Mobility, the underlying operating performance of the company has continued to be excellent. We remain holders as we still believe Alstom is attractively valued without the merger and it is now clearly being recognised by other investors who may have waited on the sidelines until the bid uncertainty was resolved.

Net Tangible Assets (NTA)
NTA value before tax3	$ 1.0985
NTA value after tax3	$ 1.0918

MEC share price and Pre-tax NTA performance[4]

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----- Start of picture text ----- 1.201.15$1.09851.101.051.000.95Pre-tax NTA per share0.90$0.900.85 MEC share price0.80May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19----- End of picture text -----

Outlook

Our concerns last month about a further rally proved to be unfounded as markets rallied to return to the levels of mid-last year. As such, any insurance carried last month hurt performance. With many market valuation metrics back to where they were before the sell-off, Morphic would note that real world data is still only showing glimpses of improvement. We continue to see markets in a consolidation phase, being currently neither bullish nor overly bearish.

The portfolio is overweight Asia, as well as the USD via a short on the Australian dollar. The Fund carries some hedges in interest rates that would likely also benefit in a falling equity market scenario.

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Global Responsible Investors

Top 10 Active Positions

Stocks(Shorts)	Industry	Region	PositionWeighting
Alstom	Global RailEquipment	Europe	4.4%
Panalpina	Freight Forwarder	Europe	3.2%
China WaterAffairs	Water Utility	Asia Pacific	2.9%
Service Corp	US Deathcare	NorthAmerica	2.8%
Bank Leumi	Israeli Bank	Middle East	2.5%
ICICI Bank	Indian Bank	Central Asia	(2.5%)
ChinaEverbright Intl	Waste-to-Energy	Asia Pacific	2.5%
Axos Financial	US Bank	NorthAmerica	2.2%
Japan Airlines	Asian Airline	Asia Pacific	2.0%
DSV	Freight Forwarder	Europe	(1.9%)

Top three alpha contributors[10 ] (bps)

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----- Start of picture text ----- Alstom 21 bpsYangtze Optical Fibre and Cable 11 bpsICICI Bank 10 bps----- End of picture text -----

Top three alpha detractors[10 ] (bps)

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----- Start of picture text ----- Panalpina -36 bpsMacromill -24 bpsMazda Motor -21 bps----- End of picture text -----

Risk Measures
Net Exposure5	102%
Gross Exposure6	174%
VAR7	1.35%
Upside Capture8	66%
Downside Capture8	82%
Best Month	5.51%
Worst Month	-5.41%
Average Gain in Up Months	2.13%
Average Loss in Down Months	-1.90%
Annual Volatility	9.01%
Index Volatility	9.65%

Hedge Positions	Risk Limit Utilisation (%)9
Long Global Bonds	1.0%
US 5/30 Steepener	0.6%
Short AUD and EUR, Long USD andCNH	0.6%

	Key Facts
ASX code / share price		MEC / 0.90
Listing Date		3 May 2017
Management Fee		1.25%
Performance Fee11		15%
Market Capitalisation		$ 47m
Shares Outstanding		52,619,987
Dividend per share12		$ 0.02

Equity Exposure Summary By region

Equity Exposure Summary By sector

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----- Start of picture text ----- 47.7% Financials 19.5%North AmericaIndustrials 16.2%Asia Pacific 23.3% Information Technology 14.7%Western Europe 19.0% Consumer Discretionary 11.2%Health Care 10.2%Africa / Middle East 4.1% Morphic Ethical Communication Services 8.0% Morphic EthicalEquities Fund Equities FundUtilities 7.0%Central Asia 3.3%Benchmark Consumer Staples 5.6% BenchmarkSouth & Central America 1.6% Materials 4.6%Real Estate 3.2%1.0%Eastern Europe -0.2%Energy0.0% 20.0% 40.0% 60.0% -10.0% 0.0% 10.0% 20.0% 30.0%----- End of picture text -----

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Global Responsible Investors

Contact us

Morphic Asset Management Pty Ltd Level 3, 139 Macquarie St Sydney 2000 New South Wales Australia www.morphicasset.com

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Irene Kardasis

Business Development Manager Phone: +61 2 9194 6707 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. Appropriate professional advice should be sought prior to making an investment decision. RIAA does not hold an Australian Financial Services Licence.

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 unaudited;[4] The pre-tax net tangible asset value is after the deduction of fees and costs. 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] Dividend per share includes the final dividend for FY18 payable on 12 December 2018.

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Global Responsible Investors