Quantcast

Clean Energy Investment is the Next Big Thing: 2 Fund Picks


Shutterstock photo

Cashing in on upcoming trends in the market is what fetches higher-than-average returns. Investors always have a keen eye for "the next big thing." Having said that, clean energy is one such area where investment opportunities are aplenty. The space has the potential to be a growing global economic force and at the same time provides spectacular returns.

Moreover, 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. Growing awareness about burning environmental issues and mitigation measures have made low-carbon as well as renewable energy sectors attractive to investors. Keeping such benefits in mind, investing in clean energy mutual funds seems prudent.

America's Clean Energy Capacity Now Bigger Than Coal

The coal industry in the United States has come under immense pressure from the renewable energy sector of the country. The renewable energy boom stems from the growing urge to counter global warming woes.

To that end, the country has witnessed an increase in renewable energy installation capacities over the past year. Per the Federal Energy Regulatory Commission report, these new renewable energy installations have outnumbered America's conventional energy installed capacity, such as coal.

Analysts have also estimated that U.S. power plants can now produce more energy from non-conventional sources compared to coal. Further, a steady fall in solar and wind costs have supported the cause. As a matter of fact, a report by the Institute for Energy Economics and Financial Analysis stated that most of the electricity produced in the United States in April came from clean energy sources.

Fund Houses That Invest Least in Fossil Fuel Stocks

According to Fossil Free Funds and Morningstar, the top three fund families, American Funds (10%), Vanguard (9%) and Fidelity (8%), 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 June 2019, the number of Five-badge fossil free funds - funds having no fossil fuel stocks - for Fidelity was 5. Although, American Funds have no fossil-free funds, it has one Carbon Underground 200-free fund.

2 Best Choices

We have, thus, selected two mutual funds focused on clean energy companies with a Zacks Mutual Fund Rank #1 (Strong Buy) or 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 ).

Fidelity Select Environment and Alternative Energy Portfolio FSLEX  fund aims for capital appreciation. The fund invests the majority of its assets in securities of companies that provide business services related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies or other environmental support etc.

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 a Zacks Mutual Fund Rank #1 (Strong Buy) and an annual expense ratio of 0.87%, which is below the category average of 1.01%. The fund has three and five-year returns of 10.4% and 6.2%, respectively.

New Alternatives A  NALFX fund invests in companies that contribute to a sustainable environment. The fund seeks long-term capital growth with income as its secondary objective. The fund primarily invests in common stocks of companies and even in other equity securities such as real estate investment trusts and American Depository Receipts etc. The fund also invests in clean and renewable energy companies such as TransAlta Renewables Inc.

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 a Zacks Mutual Fund Rank #2 (Buy) and 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 9.3% and 4.5%, respectively.

Want key mutual fund info delivered straight to your inbox?

Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week.  Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Get Your Free (NALFX): Fund Analysis Report

Get Your Free (FSLEX): Fund Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Mutual Funds
Referenced Symbols: NALFX , FSLEX



More from Zacks.com

Subscribe







Zacks.com
Contributor:

Zacks.com

Equity Research












Research Brokers before you trade

Want to trade FX?