Companies that have significantly lower exposure to fossil fuels are considered a good investment proposition. In fact, many regulating bodies, investors and consumers play an important role in guiding the companies to lower their carbon emission levels. Moving away from fossil fuels could be a costly affair for companies in the short term, but, will ensure its long-term sustainability.
In this context, it is essential to pick those mutual funds that have invested a considerable amount of their assets in low carbon mutual funds. These are basically mutual funds with low carbon risk courtesy of investment in low or no fossil fuel stocks. These funds are strong investment choices for those seeking stable gains and at the same time maintaining social responsibility.
Why Buy Low Carbon Over Fossil Fuel Funds?
Fossil fuel funds or low carbon funds invest in companies investing in fossil fuels or have high climate risk. Actually, 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. The best possible way to identify a company that is focused on reducing its carbon footprint on the earth is through assessing its total carbon emissions derived from the company’s operations.
One more thing that is assessed is that 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. In this context, we have analyzed some of the key fund families that have lower exposure to fossil fuel stocks.
Fund Families Less Vulnerable to Fossil Fuel Funds
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 exposure of not more than 10% in fossil fuel stocks. The total number of Vanguard mutual funds and exchange-traded funds that have no fossil fuels stocks are nine.
As of April 2018, the number of Five-badge fossil free funds — funds having no fossil fuel stocks — for Fidelity was 52. Although, American Funds have no fossil-free funds, it has one Carbon Underground 200-free fund. Additionally, T. Rowe Price and MFS have 11 and three Five-badge fossil free funds, respectively.
5 Low-Carbon Mutual Funds to Buy
Following the development, we have selected five low-carbon mutual funds that have no or low exposure in fossil fuel stocks. All these mutual funds have a Zacks Mutual Fund Rank #1 (Strong Buy).Moreover, these funds have an encouraging one-year and year-to-date (YTD) returns and their minimum initial investment is within $5000. Also, these funds have low expense ratios.
We expect these funds to outperform their peers in the future.
American Funds New Economy A (ANEFX - 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.
ANEFX carries an expense ratio of 0.78%, compared with the category average of 1.08%. Moreover, ANEFXrequires a minimal initial investment of $250.
The fund has one-year and YTD returns of 25.2% and 5.7%, respectively. Further, Timothy D. Armour is one of the fund managers of ANEFX since 1991.
Fidelity Select Biotechnology (FBIOX - Free Report) invests the majority of its assets in securities of companies principally engaged in the research, development, manufacture, and distribution of various biotechnological products. FBIOX carries an expense ratio of 0.73% compared with the category average of 1.25%. Moreover, FBIOX requires a minimal initial investment of $2,500.
The fund has one-year and YTD returns of 10.2% and 1%, respectively. Further, Rajiv Kaul is the fund manager of FBIOX since 2005.
T. Rowe Price Blue Chip Growth Fund (TRBCX - Free Report) seeks capital appreciation for the long run by investing heavily in common stocks of large as well as mid-cap blue-chip companies. TRBCX carries an expense ratio of 0.70% compared with the category average of 1.08%. Moreover, TRBCX requires a minimal initial investment of $2,500.
The fund has one-year and YTD returns of 28.2% and 7.6%, respectively. Further, Larry J. Puglia is the fund manager of TRBCX since 1993.
JPMorgan Large Cap Growth A (OLGAX - Free Report) invests a large chunk of its assets in equity securities of large-cap companies. The fund focuses on large-cap companies that are included on the Russell 1000 Growth Index.
OLGAX carries an expense ratio of 1.05% compared with the category average of 1.08%. Moreover, OLGAX requires a minimal initial investment of $1,000.
The fund has one-year and YTD returns of 27.4% and 6.3%, respectively. Further, Giri K Devulapally is the fund manager of OLGAX since 2004.
Vanguard International Explorer Investor (VINEX - Free Report) invests primarily in equity securities of small-cap companies based in countries outside the United States that an advisor expects to offer capital growth potential. VINEX carries an expense ratio of 0.38% compared with the category average of 1.53%. Moreover, VINEX requires a minimal initial investment of $3,000.
The fund has one-year and YTD returns of 20.4% and 0.9%, respectively. Further, Matthew Dobbs is one of the fund managers of VINEX since 2000.
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