In the past few years, investors divested at least $6 trillion of assets from fossil fuel funds. Fossil free funds, on the other hand, bear minimal climate risk. These fossil free funds invest in companies that reduce its carbon footprint by assessing its total carbon emissions derived from the company's operations.

One more thing that is assessed is whether a company's management is taking necessary actions to reduce carbon emissions and produce products that are less carbon intensive. Companies with low carbon emission risk will be at an advantage to adapt to stricter carbon standards in the coming days.

Growing awareness about burning environmental issues and mitigation measures have made low-carbon funds attractive to investors. Further, such funds not only cater to philanthropic and societal responsibilities but also provide spectacular returns. This is why it makes sense to invest in low carbon mutual funds now.

Large-Cap Growth Funds Have the Lowest Carbon Footprint

Created in the spring of 2017 by Morningstar, the “Low Carbon Designation” for mutual funds seeks to identify funds which hold assets that are relatively ‘greener’ and leave low carbon footprints on the planet. Such funds are easily found among large-cap growth funds because funds in this category invest extensively in tech companies and refrain from investing in energy, utilities and materials stocks.

Morningstar has found more than 100 low carbon mutual funds that provide higher than average returns in the United States alone. Furthermore, healthcare and technology stocks have the lowest carbon footprint.

These Fund Houses Invest the Least in Fossil Fuel Stocks

According to Fossil Free Funds and Morningstar, the top three fund families, American Funds (10%), Vanguard (9%) and Fidelity (7%), in terms of assets under management have the lowest exposure, not more than 10%, to fossil fuel stocks. The total number of Vanguard mutual funds and exchange-traded funds that have no exposure at all to fossil fuels stocks stands at nine.

As of February 2019, the number of Five-badge fossil free funds - funds having no fossil fuel stocks - for Fidelity was 49. Although, American Funds have no fossil-free funds, it has one Carbon Underground 200-free fund.

3 Best Choices

We have, thus, selected three low-carbon mutual funds with a Zacks Mutual Fund Rank #2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their 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).

JPMorgan Realty Income A  seeks high total investment return through a combination of capital appreciation and current income. URTAX invests the majority of its assets in equity securities of real estate investment trusts (REITs). URTAX may invest in both equity REITs and mortgage REITs. The fund may also invest a maximum 15% of its assets in illiquid holdings. The fund does not invest in any fossil fuel stocks and is a five-badge fossil free fund.

This Zacks sector – Real Estate 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.

URTAXhas an annual expense ratio of 1.18%, which is below the category average of 1.23%. The fund has three and five-year returns of 6.1% and 6.8%, respectively.

American Funds New Economy A (ANEFX Quick QuoteANEFX - Free Report) focuses on securities of those companies that are expected to benefit by exploiting new technologies or by providing products to meet demands of the changing global economy. The fund is invested in only six fossil fuel stocks and holds two fossil free badges.

This Zacks sector – Global-Equity 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.

ANEFXhas an annual expense ratio of 0.76%, which is below the category average of 1.07%. The fund has three and five-year returns of 17.7% and 9%, respectively.

Fidelity Blue Chip Growth (FBGRX Quick QuoteFBGRX - Free Report)  seeks capital growth for the long run. FBGRX invests the bulk of its assets in those blue-chip companies that Fidelity Management & Research Company (FMR) believes have above-average growth prospects. The fund invests both in U.S. and non-U.S. companies. The fund is invested in only six fossil fuel stocks and holds two fossil free badges.

This Zacks sector – Large Cap Growth 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.

FBGRX has an annual expense ratio of 0.72%, which is below the category average of 1.07%. The fund has three and five-year returns of 20.9% and 12.9%, respectively.

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