Environmental, social and governance (ESG) issues have captured the attention of investors over the past decade and the pandemic has only accelerated the trend. ESG is now at the forefront of positive change. Investors are focusing more on better management of large exposures to environmental, social and ESG risks and, in turn, pushing companies to focus on infrastructure and enterprise value creation.
The signs of climate change have become more evident over the years, from wildfires in California to Hurricane Ida, meteorologists and environmental activists are constantly voicing their concerns. Big guys like Microsoft co-founder Bill Gates are also working to slow the climate clock. In mid-August, Gates pledged $ 1.5 billion for climate change projects if Congress passes the infrastructure plan, as part of its climate investment fund. Breakthrough Energy, a company run by the Gates fund, would spend the big amount over a three-year period to cut emissions, focus on zero-emission aircraft fuel, long-lasting energy storage, green hydrogen and direct air capture.
Environmental issues like heat waves and rising sea levels have attracted sustainable investments. In the first quarter of this year alone, investors invested $ 178 billion in green investment funds globally. Now, with the Biden administration’s ambitious climate goals including halving greenhouse gas emissions by 2030, a carbon-free power grid by 2035 and becoming a net zero carbon nation by 2050, environmental investment is certainly at the forefront of positive change. The bill is still in the negotiation phase but opens up opportunities for green investments. Fund companies like Fidelity Investments are expanding their range of ESG / sustainable investments. 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 the Fidelity Climate Action Fund (FCAEX), the Fidelity Environmental Bond Fund (FFEBX) and the Fidelity Sustainability US Equity Fund (FSEBX), with no minimum investment.
Meanwhile, investors are turning to companies paying fair wages, given the turmoil caused by the pandemic that has left many jobless. Investor interest in pursuing investments with positive environmental or social implications has grown from 43% of high net worth investors in 2019 to 49% this year, according to a survey conducted by Cerulli Associates.
4 choices of ESG funds
Given these positives, we’ve handpicked four sustainable investing-based mutual funds that have a Zacks # 1 (strong buy) or 2 (buy) mutual fund rank. In addition, the minimum initial investment for these funds is $ 5,000.
We expect these funds to outperform their peers in the future. Remember, the goal of Zacks’ Mutual Fund Rankings is to guide investors in identifying potential winners and losers. Unlike most fund rating systems, Zacks’ mutual fund ranking doesn’t just focus on the fund’s past performance, but also its likely future success.
The question here is why should investors consider mutual funds? Reduced transaction costs and portfolio diversification without multiple commission fees associated with stock purchases are the main reasons for investing money in mutual funds (read more: Mutual Funds: Pros, Cons and how they make money for investors).
New Class A Alternative Funds NALFX strives for long-term capital growth with income as a secondary goal. It invests primarily in common stocks of companies and even other equity securities, such as real estate investment trusts and US certificates of deposit.
This Zacks – Other Product segment has a history of positive total returns for over 10 years. Specifically, NALFX has three- and five-year returns of 29.1% and 18.9%, respectively. To see how this fund has performed against its category and other ranked 1 and 2 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 the majority of its assets in mid-sized growth companies.
This Zacks – Large Cap Value sector has a history of positive total returns for over 10 years. Specifically, PARNX returned 18.7% and 16.4% for the three and five year periods, respectively. To see how this fund has performed against its category and other ranked 1 and 2 mutual funds, please click here.
PARNX is ranked # 1 among Zacks’ mutual funds 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 capital growth. The fund invests the majority of its net assets in securities of companies benefiting from technological advances or improvements.
This Sector-Tech product has a history of positive total returns for over 10 years. Specifically, the fund has returned 30.2% and 30.5% over the past three and five years, respectively. To see how this fund performs against its category and other # 1 and # 2 ranked mutual funds, please click here.
JATAX is ranked # 1 among Zacks mutual funds and has an annual expense ratio of 0.99% compared to the category average of 1.05%.
Calvert Equity Fund Class A CSIEX seeks capital growth by investing in stocks that are believed to offer opportunities for potential capital appreciation. The fund invests the majority of its assets in common stocks of companies that are among the top 1,000 listed companies in the United States.
This Zacks Large Cap Growth product has a history of positive total returns for over 10 years. Specifically, CSIEX has a three- and five-year return of 24.3% and 21.2%, respectively. To see how this fund has performed against its category and other ranked 1 and 2 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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