Morphic Ethical Equities Fund Ltd. · ASX:MEC
Morphic Ethical Equities Fund — Shareholder Meeting (December 2017)
39 slides from Morphic Ethical Equities Fund's shareholder meeting presentation, Dec 5, 2017
Slide 1: Morphic Asset Management – 05 December 2017
For personal use only 05 December 2017 1 Focussed | Vigilant | Agile
Slide 2: Morphic Asset Management Update
Morphic Asset Management Update • Signatory of Principles for Responsible Investment (formerly For personal use only known as UNPRI) • Morphic Ethical Equities Fund and Morphic Global Opportunities Fund are certified Ethical investments by the Responsible Investment Association of Australasia (RIAA)
Slide 3: Valuing oil companies for a post-carbon world
Mark Fulton – Valuing oil companies for a post-carbon world Energy stocks Index (XLE:US) vs Oil price (CO1:COM) USD, normalised, Nov 2016 – Nov 2017 For personal use only 140 Oil price Energy Sector Index 130 120 110 100 90 80 Nov 16 Aug 17 Nov 17 Feb 17 Jan 17 Mar 17 Dec 16 Apr 17 Jun 17 Jul 17 Sep
Slide 4: Valuing oil companies for a post-carbon world
Mark Fulton – Valuing oil companies for a post-carbon world Energy stocks Index (XLE:US) vs Oil price (CO1:COM) USD, 2001 - 2017 For personal use only 1.6 Energy stocks vs Oil price 5 year moving average 1.2 Oil stocks cheap 0.8 0.4 Oil stocks expensive 0 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 5: Bush Heritage Australia
Bush Heritage Australia For personal use only 5 Focussed | Vigilant | Agile
Slide 6: Bush Heritage – Healthy Country, Protected Forever
Bush Heritage – Healthy Country, Protected Forever For personal use only • We are a national charity that exists to protect Australia’s unique animals, plants and their habitats – and stop them from being lost forever. • We do this by owing and managing a network of wildlife reserves around the coun
Slide 7: Bush Heritage – We work where we are needed most
Bush Heritage – We work where we are needed most For personal use only 7 Focussed | Vigilant | Agile
Slide 8: Bush Heritage – Our Reserves & Partnerships
Bush Heritage – Our Reserves & Partnerships Charles Darwin Reserve, WA Boolcoomatta Reserve, SA For personal use only Pullen Pullen Reserve, QLD Liffey River Reserve, TAS 8 Focussed | Vigilant | Agile
Slide 9: Bush Heritage – Science Plan: six research themes
Bush Heritage – Science Plan: six research themes For personal use only 9 Focussed | Vigilant | Agile
Slide 10: Bush Heritage – Performance
Bush Heritage – Performance For personal use only 10 Focussed | Vigilant | Agile
Slide 11: For personal use only
For personal use only 11 Focussed | Vigilant | Agile
Slide 12: Morphic Ethical Equities Fund Update
Morphic Ethical Equities Fund (ASX: MEC) Update MEC Performance* MEC Share Price vs NTA** For personal use only As at October 2017 AUD, May 2017 - 23 November 2017 1 Month 3 Months ITD p.a. 1.20 5.51% 9.05% 7.00% Pre-tax NTA MEC Share Price * Performance is net of investment management fees, before
Slide 13: Morphic Global Opportunities Fund (MGOF) Update
Morphic Global Opportunities Fund (MGOF) Update MGOF Performance MGOF Performance of $10,000* For personal use only As at October 2017 AUD, Aug 2012 – Oct 2017 1 Month 3 Months CYTD 1 Year ITD p.a. $25,000 5.13% 8.94% 13.88% 22.59% 17.95% $20,000 Three-Year Risk Measures Nov 2014 – Oct 2017 $15,000
Slide 14: Portfolio positioning
Portfolio positioning As at October 2017 by country, sector and stock MGOF Position MEC Position For personal use only Stocks (Shorts) Theme Region Weighting Weighting Alstom Global Rail Europe 3.8% 3.8% North Service Corp US Deathcare 3.0% 3.0% America Samsung Electronics Global Tech Asia Pacific 2
Slide 15: For personal use only
For personal use only 15 Focussed | Vigilant | Agile
Slide 16: Is history repeating itself?
Is history repeating itself? For personal use only • Japan has a history of resisting change until it is forced upon it e.g. Perry’s ‘black ships’ • Once it does, a consensus based society then changes rapidly • Threat of China & declining population are arguably the new ‘black ships’ Source: Austra
Slide 17: Are Abe's reforms a response to the new 'black ships'?
Are Abe’s reforms a response to the new ‘black ships’? Percentage of 1st section companies with two or more Japanese companies citing return-on-equity (“ROE”) and return- For personal use only independent directors 2010 - 2016 on-assets (“ROA”) targets in medium-term plans 100% 60% 80% 50% ROE ROA C
Slide 18: Japan is interesting from both a macro and micro perspective
Japan is interesting from both a macro and micro perspective Current MGOF Long/Short Japan Direct Exposure Top 5 MGOF Japanese holdings in the portfolio For personal use only As at October 2017 As at October 2017 20% Stocks (Shorts) Theme Position Weighting 15% Ateam Japanese E-Commerce 2.8% Longs 1
Slide 19: Japan Property Developers: It's all in the name
Japan Property Developers: It’s all in the name Open House versus Iida Group share price For personal use only Normalised, November 2016 – November 2017 Open House (3288 JP) 220 • Shareholder friendly: Dividends, buybacks, relatively progressive & young board (2 200 Open House vs Iida Group under 40
Slide 20: A stock with weak ESG standards can be a profitable short
A stock with weak ESG standards can be a profitable short Prada share price performance For personal use only Prada Normalised, November 2014 - October 2017 • Prada screened poorly on a number of internal 120 models • Falling EPS revisions Prada share price performance 100 Morphic ownership • Consen
Slide 21: For personal use only
For personal use only 21 Focussed | Vigilant | Agile
Slide 22: For personal use only
For personal use only 22 Focussed | Vigilant | Agile
Slide 23: Our approach to integrating ESG
Our approach to integrating ESG For personal use only Morphic excludes investments in companies EXCLUDE fundamentally misaligned with sustainable practices Morphic integrates consideration of material ANALYSE & ESG issues within research and financial EVALUATE analysis Morphic engages with companies
Slide 24: Our approach to integrating ESG
Our approach to integrating ESG For personal use only Morphic excludes investments in companies EXCLUDE fundamentally misaligned with sustainable practices Tobacco Intensive animal Oil & gas Coal & Uranium Gambling Rain forest & Armaments & alcohol farming & Mining old growth aquaculture logging Can
Slide 25: Our approach to integrating ESG
Our approach to integrating ESG For personal use only Research & Analysis ESG Audit • Research • Questionnaire to • Model identify relevant • Value ESG issues • Risks ANALYSE & EVALUATE ESG Materiality Third Party ESG • Sustainable Data Accounting • Sustainalytics Standards Board • RobecoSAM (SASB)
Slide 26: Our approach to integrating ESG
Our approach to integrating ESG For personal use only Management Written Meetings Questionnaires Feedback Morphic engages with companies to ENGAGE encourage achievement of best-practice in all ESG-related business practices 26 Focussed | Vigilant | Agile
Slide 27: Philosophy: Markets have trouble pricing changes efficiently
Philosophy: Markets have trouble pricing changes efficiently Morphic investment by stage of the change cycle Illustrative We select investments based on: For personal use only ▪ Expected absolute returns Reduce and exit position ▪ “Market style” risk – is it a risk on/off through stop losses investm
Slide 28: Investment Process: Fundamental research combined with risk management
Investment Process: Fundamental research combined with risk management For personal use only 1. Identify change 2. Analyse 3. Decide 4. Structure • Why invest now? • Can we look at the investment from • Group review, Joint CIO veto power • Discuss with risk manager: How can • Has the market already
Slide 29: Identify Change
Identify Change For personal use only Quality Value Earnings revisions Mispricing relative ROE vs. COE means to value means market changing fundamentals still to reflect change √√ What we seek Investment Why it matters opportunities √ √ Confirmation that change is real Momentum 29 Focussed | Vigilan
Slide 30: Identifying Investments: Leveraging diverse views
Identifying Investments: Leveraging diverse views For personal use only Fundamental research & Tech-enabled research ▪ 83 years of collective ▪ Look for different data sources experience ▪ Apply Quantitative models ▪ Modelling of stocks in-house ▪ Factors based research ▪ Meetings with management ▪
Slide 31: Analyse Ideas
Analyse Ideas Focussed set of idea sources For personal use only Ethical screening Bottom Up Top Down Factor and industry screens Review of previously held stocks Macro and thematic research for new ideas via quantitative models Promising outputs subject to detailed research based on: • Review of pu
Slide 32: Investment Decision
Investment Decision • Four senior team members act as capital allocators For personal use only • Approvals following presentation at team meetings • All proposals subject to veto by either PM • Sizing based on loss tolerance and VaR • Exits determined by valuation, news flow and stop-losses Robust b
Slide 33: Portfolio Construction
Portfolio Construction Portfolio For personal use only Securities Market Exposure Hedging • Key driver of • Country and sector tilts • Managing specific risks outperformance within risk parameters • Currency hedging • Coherent sizing • Dynamic cash weighting 20 to 60 Long and Short Typically ~50% Va
Slide 34: Ongoing Monitoring: Portfolio Management governance
Ongoing Monitoring: Portfolio Management governance Checklist for analysts Structured meeting schedule For personal use only 1. Daily news flow update Forum Issues 2. Preview and de-brief after company Daily debrief ▪ Analysts update with “night action” results/conference calls ▪ General (company- &
Slide 35: Structuring investment to capture intended exposures only
Structuring investment to capture intended exposures only Intended exposures and hedging Sector and regional limits For personal use only Information Technology • Regular analysis of country, regional and industry exposures Financials • Use of ETFs to align active equity exposure with the target Con
Slide 36: Comprehensive overview of portfolio risks
Comprehensive overview of portfolio risks Risk Insight Checklist for Risk Manager For personal use only Portfolio Blind Spots Concentration Liquidity Fat Tails Correlation 1. Measure and Monitor individual Investment Daily Volume Tests Risks Leverage • Historical Simulations and volatility Market Ca
Slide 37: Experienced Senior investment team
Experienced Senior investment team 27 years experience in financial markets. 16 years experience in financial markets. For personal use only ▪ ▪ ▪ Jack co-founded Morphic Asset Management in 2012. ▪ Geoff joined Morphic at the inception in 2012. He He was previously Deputy Chief Investment Officer a
Slide 38: Significant alignment of interests with investors
Significant alignment of interests with investors For personal use only ▪ All senior team members are shareholders in the Firm ▪ Senior team members have a significant proportion of NAV in the Fund ▪ Short term incentives are driven by individual and Fund performance ▪ One third of bonuses invested
Slide 39: Morphic Asset Management
Morphic Asset Management Level 3, 139 Macquarie St For further enquiries: Sydney 2000 For personal use only New South Wales Irene Kardasis Australia Business Development Manager Phone:+612 9194 6707 Email: [email protected] Disclaimer: This presentation has been prepared for wholesale inves
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