14 Jan

Monthly Performance Report December 2021

Global Responsible Investors 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 . 1 Month 3 Months 6 Months 1 Year 3 Years (p.a.) ITD (p.a.) Morphic Ethical Equities Fund 1 2.74% 6.37% 9.64% 33.13% 19.39% 12.88% Index 2 1.43% 5.99% 8.99% 25.81% 19.10% 14.17% Net Tangible Assets (NTA) NTA value before tax 3 $ 1.5642 NTA value after tax 3 $ 1.4149 Investment returns* Monthly Report December 2021 Investment Returns since inception 4 * Past Performance is not an indication of future performance. -10.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% Portfolio Commentary The Morphic Ethical Equities Fund increased 2 . 74 % net during December comparing well to the MSCI ACWI (AUD ) which expanded 1 . 43 % over the month . For the calendar year ending December, the Fund increased 33 . 13 % net representing 7 . 32 % outperformance when compared with the same index which expanded 25 . 81 % over the same period . While CY 21 was not nearly as volatile as that seen in the prior year, there was no shortage of issues to consider when positioning the portfolio for the most optimal outcome . We consider a balanced investment approach as the best way to participate in the market as we focus on both capital growth and capital preservation . Right now, we have the highly transmissible Omicron variant rampaging around the world, however thankfully it appears the current COVID strain is much less lethal than that of Delta . The US Fed finally conceded that inflation is looking more structural than transitory, and as such provided a very hawkish outlook as it winds down its Quantitative Easing (QE) (likely ending in March) and subsequently raising interest rates once this is complete . The question will be when does it reduce its balance sheet (quantitative tightening) as this would reduce financial liquidity further . President Biden’s Build Back Better (BBB) plan was rejected as it was deemed unnecessary, especially when considering the potential inflationary impact as the economic supply/demand set up is currently very stretched . We would not discount a trimmed down version over the coming months . Supply chains remain fragile with lead times still very stretched and not likely to be repaired until second half 2022 . That said, we are hearing about small green shoots as we are now past peak demand season which should give the system a chance to breathe . Labour costs are escalating as wage inflation continues to build on a declining unemployment rate . We expect the deflationary impact of supply chain repair to be replaced with wage inflation in 2022 . The portfolio’s top three contributors for the month Azek , Sensata and Option Care Health added 156 bps to performance while Chart Industries, First Watch and Under Armour detracted 85 bps . We only had two portfolio companies reporting results in December and will briefly touch on them here : Ciena reported a very strong finish to its year ( October year end ) as it is benefiting from increased network spending from pretty much every cohort including webscalers , service providers and enterprise . It ended the year with its highest ever backlog at $ 2 . 2 bn which was double that of the same time last year . Management guided for 11 - 13 % FY 22 revenue growth which compared well to the market which was expecting something closer to 8 % while also implementing a $ 1 bn buyback . Overall, secular demand remains very strong, driven by increasing bandwidth needs, the shift to the cloud, and also the focus on edge applications as well as digital transformation and a growing need for network automation . PVH reported its third quarter results with its Tommy Hilfiger and Calvin Klein brands delivering significantly ahead of guidance . Third quarter margins benefited from strong pricing power and much lower promotional activity although continued elevated freight costs and delayed shipping times remain an operational headache . Management expects revenues to come in at the top end of its prior guidance however with FY 21 EBIT margins now expected to come in above pre - pandemic levels, it increased its EPS expectation to $ 9 . 25 up from $ 8 . 50 previously . We should note that PVH started out FY 21 expecting EPS of $ 6 . 00 per share and have been upgrading throughout the year . Global Responsible Investors Stocks Industry R egion Position Weighting Tempur Sealy Consumer Discretionary North America 4.70% Sensata Industrials North America 4.53% PTC Information Technology North America 4.44% DigitalBridge Real Estate North America 4.27% Flex Information Technology North America 4.22% Webster Financial Financials North America 3.92% XPO Logistics Industrials North America 3.74% Bureau Veritas Industrials Europe 3.72% TKH Group Industrials Europe 3.64% PVH Group Consumer Discretionary North America 3.55% Top 10 Active Positions Risk Measures Net Exposure 5 88.66% Gross Exposure 6 95.39% VAR 7 1.51% Best Month 8.60% Worst Month - 6.49% Average Gain in Up Months 2.40% Average Loss in Down Months - 1.57% Annual Volatility 9.65% Index Volatility 10.23% Top three alpha detractors 8 (bps) Chart Industries - 24 bps Under Armour - 30 bps First Watch Restaurant Group - 31 bps Top three alpha contributors 8 (bps ) Equity Exposure Summary By region Equity Exposure Summary By sector Key Facts ASX code / share price MEC / 1.335 Listing Date 3 May 2017 Profit Reserve 9 $ 0.421 Management Fee 1.25% Performance Fee 10 15% Market Capitalisation $ 71m Shares Outstanding 53,164,680 Dividend per share 11 $0.06 0.0% 0.0% 0.0% 0.0% 3.7% 18.7% 72.9% -10.0% 10.0% 30.0% 50.0% 70.0% Eastern Europe Africa / Middle East South & Central America Central Asia Asia Pacific Western Europe North America Morphic Ethical Equities Fund Benchmark 2.2% 0.0% 0.0% 2.4% 3.3% 4.3% 3.5% 10.3% 12.2% 19.5% 37.6% -5.0% 5.0% 15.0% 25.0% 35.0% Materials Utilities Energy Consumer Staples Communication Services Real Estate Health Care Financials Consumer Discretionary Information Technology Industrials Morphic Ethical Equities Fund Benchmark Azek 55 bps Option Care Health 51 bps Sensata 50 bps Global Responsible Investors 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 . Contact us Investor Relations Phone : +61 2 9021 7701 Email: info@ellerstoncapital.com Morphic Asset Management Pty Ltd Level 11, 179 Elizabeth St Sydney 2000 New South Wales Australia www.morphicasset.com

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