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3 Alternative Energy Funds Set to Gain From Impact Investing

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In the past few years, alternative energy investment has grown leaps and bounds, overtaking traditional peers in several occasions. Global warming and climate change had already drawn attention toward greener and eco-friendlier solutions for energy, but in 2020, with the pandemic setting new trends, impact investing has come into limelight more, and alternative energy investments has risen drastically.

So far this year, the Renewable Energy Index (RENIXX), which tracks the 30 largest renewable energy companies across the globe, has more than doubled. Beginning the year at 676.35 points, the index stands at 1543.93, as of Dec 7. First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) and Invesco Solar ETF (TAN) have jumped 146.4% and 164.4%, respectively, so far this year compared to the S&P 500’s rise of 13.5%.

At present, 70% of energy consumed worldwide is catered through fossil fuels (oil, natural gas and coal), but investors are betting billions of dollars on alternatives like wind, solar and other low-carbon sources. According to a news report by Reuters, a report from Morningstar shows that investors traded $2.3 billion into European renewable energy investment funds in the July-September period, which is 11 times the amount for the same months last year. Morningstar does not track U.S. alternative energy funds but Europe’s August-September inflows underscored the rising importance and transition into alternative energy. In the August-September period, inflows to alternative energy funds took assets under management to a record 9.8 billion euros compared to European funds investing in oil and gas, which rose to 4.85 billion euros.

The International Energy Agency study estimates that renewable energy generation will more than quadruple by 2040. In fact, with the theme of alternative and clean energy transition gaining importance, even big oil companies are now shifting focus to alternative or green energy. One of the world's largest independent oil refiners, Valero Energy, is focusing on renewable energy. Valero Energy now operates Diamond Green Diesel, a renewable diesel joint venture with Darling Ingredients.

What’s more? President Elect Joe Biden has outlined a $2-trillion plan to fight climate change and has pledged to put America on a path to a 100% clean-energy economy by 2050. This brightens prospects for alternative energy funds.

3 Funds to Buy

Given the current trend of impact investing, it seems that alternative energy producers and related companies are poised to grow. We have selected three alternative energy mutual funds with a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (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 - Free Report) 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. The Zacks Mutual Fund Rank #1 fund has three and five-year returns of 17.9% and 17%, respectively.

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

NALFX has an annual expense ratio of 1.08% versus the category average of 1.28%. Additionally, the fund has significant investment in alternative energy companies like Innergex Renewable Energy, Vestas Wind Systems and Nextera Energy.

Calvert Global Energy Solutions Fund Class A (CGAEX - Free Report) 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. The Zacks Mutual Fund Rank #1 fund has three and five-year returns of nearly 10% and 9.8%, respectively.

This Zacks Sector – Other product has a history of positive total returns for more than 10 years. 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 1.28%. Additionally, CGAEX has significant investment in alternative energy companies like First Solar, Nextera Energy Partners and Terraform Power.

Fidelity Select Environment and Alternative Energy Portfolio (FSLEX - Free Report) aims for capital appreciation. The non-diversified fund invests majority of assets in common stocks of companies principally engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services. The Zacks Mutual Fund Rank #2 fund has three and five-year returns of 3.4% and 9.5%, respectively.

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

FSLEX has an annual expense ratio of 0.85% versus the category average of 1.04%. Additionally, the fund has significant investment in alternative energy companies like Tesla, Cummins and Linde.

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