Morphic’s Benchmark Underperformance Raises Questions on Ethical Investing Strategy
Morphic Ethical Equities Fund Limited reported a half-year profit after tax of $1.26 million for December 2025, declaring a fully franked 1 cent dividend and continuing its share buy-back program.
- Half-year profit after tax of $1.26 million, down from $2.96 million prior year
- Net tangible asset value per share rose to $1.3483 before tax
- Portfolio returned 5.24% net but lagged benchmark by 4.01%
- Declared fully franked quarterly dividend of 1 cent per share
- Share buy-back program continued with nearly 2 million shares repurchased
Financial Performance Overview
Morphic Ethical Equities Fund Limited (ASX, MEC) has released its interim results for the half-year ended 31 December 2025, reporting a profit after tax of $1.26 million. This represents a notable decline from the $2.96 million profit recorded in the same period last year, reflecting a more challenging investment environment during the period.
The fund’s net tangible asset (NTA) value per share increased to $1.3483 before tax, up from $1.1933 in the prior corresponding period, signalling modest growth in underlying asset values despite the profit contraction.
Portfolio Performance and Benchmark Comparison
The fund’s portfolio delivered a net return of 5.24% over the half-year, yet it underperformed its benchmark, the MSCI All Countries Total Return Daily Index, by 4.01%. This underperformance highlights the ongoing challenges faced by the fund’s ethical investment strategy, which excludes sectors such as coal, uranium, oil and gas, and other industries deemed environmentally or socially harmful.
Management attributes the portfolio’s returns to a long and short equity strategy focused on global listed securities, with an emphasis on ethical screening. The fund’s commitment to sustainability remains a core principle, even as it navigates market headwinds.
Dividend and Capital Management
In line with its policy to provide consistent income, Morphic declared a fully franked quarterly dividend of 1 cent per share, payable on 18 March 2026. The dividend reflects the company’s prudent approach to balancing income distribution with capital preservation.
Capital management remains a priority, with the company continuing its share buy-back program. During the half-year, nearly 2 million shares were repurchased, reducing issued capital and potentially supporting share price stability. Since the program’s inception, the company has bought back over 30 million shares, underscoring its commitment to returning value to shareholders.
Governance and Compliance
The financial statements were reviewed by Ernst & Young, with no independence issues noted. The board, led by Chairman Jack Lowenstein, confirmed no changes in control or associates during the period, maintaining steady governance oversight.
Looking ahead, the fund remains focused on delivering superior risk-adjusted returns through its ethically screened portfolio, while navigating the complexities of global markets and evolving investor expectations.
Bottom Line?
Morphic Ethical Equities Fund’s results underscore the balancing act between ethical investing and market performance, with dividend continuity and buy-backs signalling confidence despite benchmark challenges.
Questions in the middle?
- What specific factors contributed to the portfolio’s underperformance against its benchmark?
- How will the fund adjust its strategy to enhance returns while maintaining ethical screening?
- What impact will ongoing share buy-backs have on liquidity and shareholder value?
