Trium Morphic ESG Long/Short UCITS

Enhancing fundamental analysis with ESG

Hamlin Lovell

Morphic Asset Management (Morphic)’s co-CIOs, Chad Slater and Jack Lowenstein, have been fundamental investors, selectively employing ESG factors, for 10 and 20 years respectively, and have been shorting since they set up Morphic in 2012. In March 2018, they launched the daily dealing Trium Morphic global equity long/short UCITS fund, with discounted fees for the founders’ share class.

The top ten holdings look very different from those of many ESG and other global hedge funds, due to Morphic’s Asian and mid-cap focus, its distinguished investment process, and its distinctive approach to ESG. Morphic adds ESG factors to its fundamental investment process and ESG considerations somewhat constrain the investment universe. Longs must satisfy minimum ESG standards and shorts are generally of the lower rated ‘corporate citizens’ whilst consciously not shorting ‘better ESG citizens’.

For example, Tesla is a popular holding amongst some types of ESG investors, but it would fail both Morphic’s valuation criteria, and the ‘G’ for Governance in its ESG criteria, due to issues including the board of directors and the Solar City merger. Unlike many hedge fund managers, Morphic would not short Tesla however, “as that would drive up the cost of capital for a firm that is performing a social good in developing the electric car industry,” argues Slater, who began his career as an economist in Australia’s Treasury Department.

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