Environmental, social and governance (ESG) issues have grabbed investors’ attention over the last decade and the pandemic has only accelerated the trend. ESG now stands at the forefront of positive change. Investors are focusing more on better management of material environmental, social and ESG risk exposures and in turn pushing businesses to emphasize on infrastructure and corporate value creation.
Signs of climate change have become more prominent over the years, starting from California wildfires to Hurricane Ida, meteorologists and environmental activists are constantly expressing their concerns. Bigwigs like Microsoft’s co-founder Bill Gates are also putting in efforts to slow down the climate clock. In mid-August, Gates pledged $1.5 billion for projects to combat climate change if the Congress passes the infrastructure plan, as a part of his climate investment fund. Breakthrough Energy, a firm run by Gates’ fund, would spend the hefty amount over a period of three years to lower emissions, focus on zero emissions plane fuel, long-duration energy storage, green hydrogen and direct air capture.
Environmental issues like heat waves and rising sea levels have drawn sustainable investments. In the first quarter of this year alone, investors poured $178 billion into green investment funds globally. Now with Biden administration’s ambitious climate goals, including cutting greenhouse gas emissions in half by 2030, carbon-free electrical grid by 2035 and becoming a net-zero-carbon nation by 2050, environmental investing is surely at the forefront of positive change. The bill is still in the negotiation phase but opens up opportunities for green investments. Fund houses like Fidelity Investments are expanding their ESG/sustainable investing line-up. In June, Fidelity added five actively managed ESG funds, offering investors and advisors 11 ESG mutual funds and ETFs. Notably, the three new actively managed mutual funds are Fidelity Climate Action Fund (FCAEX), Fidelity Environmental Bond Fund (FFEBX) and Fidelity Sustainability U.S. Equity Fund (FSEBX), with no minimum investment.
Meanwhile, investors are getting inclined toward companies that pay fair wages, given the pandemic-led turmoil that left many jobless. Per a survey run by Cerulli Associates, investor interest in pursuing investments with positive environmental or social implications has increased from 43% of affluent investors in 2019 to 49% this year.
4 ESG Fund Picks
Given such positives, we have handpicked four sustainable investment-based mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). In addition, the minimum initial investment for these funds is within $5,000.
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 fund-rating systems, the Zacks Mutual Fund Rank is not just focused on the past performance of the fund but also on its likely future success.
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 the primary reasons for parking money on the 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 growth with income as its secondary objective. It primarily invests in common stocks of companies and even in other equity securities, such as real-estate investment trusts and American Depository Receipts.
This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, NALFX has a three and five-year returns of 29.1% and 18.9%, respectively. To see how this fund performed compared to 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% compared to the category average of 1.26%.
Parnassus Mid Cap Growth Fund – Investor PARNX aims for capital appreciation. The fund invests majority of assets in mid-sized growth companies.
This Zacks Sector – Large Cap Value has a history of positive total returns for more than 10 years. Specifically, PARNX has returned 18.7% and 16.4% for the three and five-year periods, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PARNX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.83%, which is below the category average of 1.09%.
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 30.5% 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%.
Calvert Equity Fund Class A CSIEX aims for growth of capital through investment in stocks believed to offer opportunities for potential capital appreciation. The fund invests majority of assets in common stocks of companies that rank among the top 1,000 U.S.-listed companies.
This Zacks Large Cap Growth product has a history of positive total returns for more than 10 years. Specifically, CSIEX has a three and five-year returns of 24.3% and 21.2%, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
CSIEX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.94% compared to the category average of 0.99%.
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