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4 Funds to Buy as Climate-Themed Investing Sees Dramatic Rise

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As the climate clock ticks on, investors are trying to play a huge role in preventing this change. According to a Morningstar report, there were 76 new climate-aware funds launched globally in 2020 alone, as cited in an FA-mag.com article. These funds are focusing more on low carbon emission, climate consciousness, green bond, climate change solutions or clean energy.

The pandemic has impacted lives globally and has pushed governments, corporations, and investors to reanalyze priorities and make changes toward a green, inclusive, and sustainable future. Though climate change has been a prime agenda while framing the environmental, social, and governance (ESG) strategy for businesses, over the past year there have been several others who have managed to find loopholes and continue damaging the environment. Investors have been calling for companies to ensure transparency and are incorporating climate data into their investment strategies. In fact, they are demanding details of current and future activities that can have an impact on the climate from companies.

Per a Morningstar report, in the first quarter of 2021, sustainable funds in the United States witnessed nearly $21.5 billion in net inflows, higher than the previous record and all-time high of $20.5 billion achieved in the fourth quarter of 2020. Last quarter’s inflow was double that of the $10.4 billion in the first quarter of 2020 and five times higher than first-quarter 2019 levels. Additionally, assets in U.S. sustainable funds jumped 12% from last quarter, totaling nearly $266 billion, and have surged 123% from the same period last year. So far this year, there were 11 funds launched in America with sustainability mandates. Many existing funds are transitioning to low-carbon footprints assets to offer more attractive options to investors.

Thanks to President Joe Biden’s plans to cut carbon emissions in half by 2030 and rejoining the Paris Climate Agreement on Feb 19, sustainable especially climate-themed funds are witnessing solid demand. Biden has also emphasized his plans to make the United States reach net zero emissions by 2050. Given these changes in policies, there will be a massive shift toward renewable energy and electric vehicles. Along with that, homebuyers will be looking for more energy-efficient homes or retrofit existing buildings with technology to reduce carbon emissions.

4 Top Fund Picks

As investors continue to focus on climate-theme funds while making investment decisions, we have shortlisted four such mutual funds. All of these funds 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 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 the reasons 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) seeks 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 three and five-year returns of nearly 29% and 20.8%, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

NALFX, a Zacks Mutual Fund Rank #1 fund, has an annual expense ratio of 0.96% compared with the category average of 1.26%. The fund invests in companies that contribute to a sustainable environment and its top stock holdings are Brookfield Renewable Energy, Terraform Power and Nextera Energy.

Fidelity Blue Chip Growth (FBGRX - Free Report) aims for 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 three fossil fuel stocks and has low carbon footprint emissions per unit of investment compared to the benchmark.

This Zacks sector – Large Cap Growth product has a history of positive total returns for more than 10 years. Specifically, FBGRX has three and five-year returns of 31.6% and 28.2%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FBGRX, a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.79%, which is below the category average of 1.00%. The fund has three and five-year returns of 28.3% and 22.8%, respectively. It invests in companies that contribute to a sustainable environment and its top ESG stock holdings are Tesla, Microsoft and Google.

Calvert Equity Fund Class A (CSIEX - Free Report) aims for growth of capital through investment in stocks, which offer opportunities for potential capital appreciation. This Zacks Mutual Fund Rank #2 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 three and five-year returns of 23.8% and 20.3%, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

CSIEX, a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.94% compared with the category average of 1.00%. The fund’s top ESG stock holdings are Microsoft, Thermo Fisher Scientific and Google.

Parnassus Mid Cap Growth Fund - Investor (PARNX - Free Report) aims for capital appreciation. The fund invests majority of assets in mid-sized growth companies. PARNX does not invest in any fossil fuel stocks and is a five-badge fossil free fund.

This Zacks sector – Large Cap Growth product has a history of positive total returns for more than 10 years. Specifically, PARNX has three and five-year returns of 18.4% and 16.7%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PARNX, a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.83%, which is below the category average of 1.11%. The fund’s top sustainable stock holdings are Morningstar, Square, and IDEXX Laboratories.

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