3 Funds to Pick as US Regulators Assess Climate Change Risk

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On Jul 11, U.S. Treasury Secretary Janet Yellen said that she will lead a team of top American regulators to assess the potential risk that climate change poses to the country’s financial system. Climate change has been a crucial part of President Joe Biden’s election campaign and since he has launched a wide-range of initiatives to alter the direction of the climate clock.

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Climate change has a huge impact on the country’s financial framework. According to the Intergovernmental Panel on Climate Change (IPCC) estimates, if temperatures rise to 4 degrees Celsius above pre-industrial levels over the next 80 years, there could be a global economic loss of $23 trillion per year, a permanent damage that could overshadow the 2007-2008 financial crisis.

Financial institutions are widely exposed to both physical and transition risks of climate change. While physical risks talk about frequent severe weather events and lasting environmental changes, transition risks encompass costs of policy and technological changes necessary to achieve a greener and cleaner economy. In the period between 2016 and 2021, the United States has witnessed 81 natural disasters that each caused at least $126 billion in losses per year, totaling to a whopping $630.2 billion. So far this year, America has recorded 8 climate disasters with losses exceeding $1 billion each. The disasters include one drought, two floods, four severe storms and one winter storm.

Yellen has expressed her concerns regarding the current financial system and its incapability to make reliable disclosure with regard to climate change. She has also called for a meeting with international banking heads and lending institutions to discuss ways to better align efforts with the Paris climate agreement that America has rejoined under Biden’s administration. Biden is also putting in efforts to include huge investments to slow climate change in the multitrillion-dollar infrastructure spending. But, the bipartisan group of senators has only approved $15 billion toward electric vehicle infrastructure and electric buses and transit, which is a fraction of what Biden proposed earlier.

However, with climate change remaining one of the biggest concerns, global superpowers are constantly emphasizing on the use of clean energy and reducing carbon emissions. Investors also play a significant role in this path of change as they pour money into mutual funds with higher environmental, social and governmental (ESG) scores. Fund issuers like Fidelity are also taking up this opportunity to help and support sustainable investing. In June, Fidelity launched five new actively-managed ESG funds, of which two are equity mutual funds, one bond mutual fund and two equity ETFs.

Top Clean Energy Mutual Fund Picks

Given the current scenario, we have shortlisted three funds that have a significant exposure to clean energy providers, EV makers or clean technology developers and flaunt a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

New Alternatives Fund Class A NALFX aims for long-term capital appreciation, with income being the secondary objective. The fund invests in common stocks of YieldCos, American Depository Receipts, real estate investment trusts and publicly-traded master limited partnerships.

This Zacks Sector – Other product has a history of positive total returns for more than 10 years. NALFX has three and five-year return of 28.7% and 19.8%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

NALFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.96% versus the category average of 1.26%.

Calvert Global Energy Solutions Fund Class A CGAEX aims to track the performance of the Calvert Global Energy Research Index. The fund invests majority of assets in companies whose main business is sustainable energy solutions. The portfolio consists of companies engaged in facilitating the transition to a more sustainable economy through the reduction of greenhouse gas emissions and the expanded use of renewable energy sources.

This Zacks Sector – Other product has a history of positive total returns for more than 10 years. CGAEX has three and five-year return of 24.9% and 18.6%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

CGAEX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.24%, which is below the category average of 1.26%.

Janus Henderson Global Technology and Innovation Fund Class A JATAX aims for long-term growth of capital. The fund invests majority of net assets in securities of companies benefiting from advances or improvements in technology.

This Sector-Tech product has a history of positive total returns for over 10 years.  Specifically, the fund’s returns are 30.2% and 32.2% over the past three and five-year period, respectively. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.

JATAX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.99% versus the category average of 1.05%.

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