Morphic Ethical Equities Fund Surges to $3M Profit, Eyes Future Dividends

Strong Financial Turnaround

Morphic Ethical Equities Fund Limited (ASX: MEC) has delivered a striking financial recovery in the half-year ended 31 December 2024, posting a profit after tax of $2.96 million compared to a loss of $1.93 million in the same period last year. This 254% swing reflects a significant improvement in the fund’s investment portfolio performance and operational management.

The net investment income surged to nearly $5 million, marking a 267% increase over the previous half-year. This robust income growth underpins the fund’s improved profitability and signals effective portfolio positioning amid global market conditions.

Portfolio Performance and Benchmark Comparison

During the period, the fund’s portfolio achieved a net return of 12.02%, though it slightly lagged its MSCI All Countries Total Return benchmark by 1.84%. While the underperformance may raise questions among investors, the fund’s ethical investment mandate, excluding sectors such as coal, uranium, tobacco, and armaments, may contribute to this variance.

Since inception in May 2017, the fund has delivered a net annualised return of 14.09%, outperforming the benchmark by 1.25%, underscoring its long-term value proposition despite short-term fluctuations.

Capital Management and Dividend Policy

The company did not declare any dividends during the half-year, maintaining a cautious stance despite returning to profitability. The board reaffirmed its commitment to paying fully franked dividends and increasing them over time, contingent on distributable profits and prudent business practices. This conservative approach may reflect a focus on strengthening the balance sheet and navigating market uncertainties.

Notably, the fund continued its active share buy-back program, repurchasing 2.47 million shares during the period at an average price around $1.03. This strategy supports net tangible asset (NTA) growth, which rose to $1.1933 before tax and $1.1632 after tax, up from $1.0703 and $1.0765 respectively at the previous half-year.

Governance and Ethical Investment Focus

Under the stewardship of Chairman Jack Lowenstein and independent directors Mark Forstmann and Kirstin Hunter, the fund continues to prioritise ethical investment principles. Its portfolio excludes companies involved in environmentally damaging activities, intensive farming, tobacco, armaments, alcohol, and gambling, aligning with growing investor demand for responsible investment options.

The fund’s strategy employs a long and short equity approach focused on global listed securities, aiming to deliver superior risk-adjusted returns alongside capital growth and consistent income.

Outlook and Market Positioning

While the half-year results demonstrate a strong rebound, the slight underperformance against the benchmark and the absence of dividends may temper some investor enthusiasm. However, the fund’s disciplined capital management and ethical mandate position it well for sustainable growth as global markets evolve.

Investors will be watching closely for the fund’s next moves on dividend declarations and portfolio adjustments, particularly as market volatility and ESG considerations continue to shape investment landscapes.