Rapid climate change has been a global concern for long now. However, environmentalists are worried about governments not doing enough to fight global warming and promote decarbonization. In the financial market, climate-focused investment funds are playing a huge role in creating a positive impact and routinely monitoring mal-practices like greenwashing.
Environmental issues like cyclones, tornadoes, heat waves and rising sea levels have drawn in sustainable investments. In the first quarter of this year alone, investors poured $178 billion into green investment funds, globally. The Biden administration is already considering carbon tax or regulations to make fossil fuel companies and electrical power plants cut carbon emissions. Rather than restricting investment in these industries, investors and government should help them invest in technologies that will allow them to produce goods and services with the minimum release of greenhouse gases.
In fact, several oil and gas companies are now investing in renewable energy. For instance, BP, Shell, Chevron, Total, Eni and Exxon have pumped billions into clean energy projects. Shell plans to invest in a mix of solar, offshore wind, and onshore wind projects to accelerate the transition to net-zero emission. Meanwhile, Repsol is a stakeholder in the WindFloat Atlantic floating wind farm.
With the 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, environment-focused investing is surely in the limelight. The bill’s fate will be decided before September ends and may open up opportunities for green investments.
Climate-aligned fund tracking will help investors avoid companies that engage in greenwashing. Investors can use tracking criteria like low-carbon, climate change or Paris-aligned (aligned to goals set by The Paris Agreement) to allocate money in green companies and move away from those with deteriorating environmental performance.
Additionally, the Climate Investment Funds (CIF), the world’s largest multilateral fund working to pilot and scale climate solutions, is fighting the impacts of climate change and accelerating the shift to a low-carbon economy. This $8.5-billion fund is empowering the transformation into clean technology, energy access, climate resilience and sustainable forests.
Fund houses like Fidelity Investments are expanding their ESG or sustainable investing line-up. Earlier in June, fund giant 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.
4 ESG Fund Picks
Given such positives, we have handpicked four mutual funds that focus on green or environment-focused investing and carry a Zacks Mutual Fund Rank #1 (Strong 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 29.3% and 19.6%, 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%.
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 nearly 30% and 30.8% 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 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 25.1% and 18.3%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
CGAEX has an annual expense ratio of 1.24%, which is below the category average of 1.26%.
Fidelity Select Utilities Portfolio FSUTX aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies, primarily engaged in the utilities industry and companies generating most of their revenues from utility operations.
This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. Specifically, FSUTX has returned 9.5% and 11.5% in the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSUTX has an annual expense ratio of 0.76%, which is below the category average of 0.94%. This fund has significant investment in alternative energy companies like Clearway Energy, Vistra Corp, Nextera Energy and Sunnova Energy.
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