3 Mutual Funds to Pick Amid the Climate Tech Boom
Decarbonizing the planet has become the top agenda for economies across the globe. With an aim to conserve the environment and lower carbon footprint, the clean technologies space has been booming in the past couple of year. However, at present, concepts like climate tech are also booming. Stretched out across multiple sectors like transportation, real estate and agriculture, climate tech focuses on renewable energy, electric vehicles, cellular agriculture, waste management, among many other areas.
Reducing carbon emissions to net zero has become a target for many countries and holds the key to pause/slowdown the staggering rise in extreme weather disasters, costing billions of dollar worth of destructions each year. Per a Bank of America report, the economic impact of climate change could reach $69 trillion this century and to counter the grave conditions, investing in energy transition needs to increase at least by $4 trillion a year.
Climate tech companies (startups and smaller units of tech giants) have become attractive for seed- to growth-stage investors. Recently, VC firm, Fifth Wall has been raising $200 million climate-focused vehicle to cater to climate/clean tech firms. Further, with President Joe Biden’s push for clean-energy investment, climate tech will surely pull through. The Biden administration already has a $7.5-billion plan to expand electric vehicle charging to underserved areas and is pouring in a variety of EV incentive programs to promote the transition to clean tech.
Solar and wind energy providers are the winners in this race as series of executive orders have been passed to combat climate change, including spending $400 billion on federal procurement of renewables, batteries and electric vehicles, reorienting government’s energy purchases, ending fossil fuel leasing and easing renewable energy development on federally-owned lands. Per the U.S. Energy Information Administration, the extension of solar tax credits by two years, which gives a 26% tax credit for both solar and solar plus storage installations, will also help reduce the cost of solar projects.
3 Top Fund Picks
As the climate clock continues to tick, concepts like climate tech along with a combination of policy changes should help countries reverse the damage done. Given such scenario, we have selected three mutual funds that have significant exposure to alternative energy and climate tech. Moreover, these funds hold a Zacks Mutual Fund Rank #1 (Strong Buy) and 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).
Calvert Global Energy Solutions Fund Class A CGAEX 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.
This Zacks Sector – Other product has a history of positive total returns for more than 10 years. CGAEX has three and five-year return of 24.2% and 17.9%, respectively. 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 1.26%.
New Alternatives Fund Class A NALFX 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 fund has significant investment in alternative energy companies like Innergex Renewable Energy, Vestas Wind Systems and Nextera Energy.
This Zacks Sector – Other product has a history of positive total returns for more than 10 years. NALFX has three and five-year return of 29.1% and 18.9%, respectively. 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 0.96% versus the category average of 1.26%.
Fidelity Select Utilities Portfolio FSUTX aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies, primarily engaged in the utilities industry and companies generating most of their revenues from utility operations.
This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. Specifically, FSUTX has returned 8.9% and 9.4%, in the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSUTX has an annual expense ratio of 0.76%, which is below the category average of 0.94%. Additionally, this fund has significant investment in alternative energy companies like Clearway Energy, Vistra Corp, Nextera Energy and Sunnova Energy.
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