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4 ESG Funds to Buy for Purpose and Profit

It isn’t unknown that climate change is real. Many investors have also realized their responsibilities toward the society. This stems from the mindset that making our planet a better place to live in is better than preparing for extra-terrestrial colonization. Furthermore, one should also understand the impact of the change which comes with a shift in the consumer market as it has become increasingly thoughtful and interested in “ethical consumption.”

Smart investors have already started playing this trend by parking their money in socially responsible mutual funds.

At a time when the coronavirus pandemic is sending ripples across funds of all categories, sustainable funds appear to be largely unaffected. Per Morningstar, 70% of sustainable equity funds in America ended in the top half of their categories in the first quarter of this year. Further, the fund data house also stated that ESG funds witnessed $21 billion in net inflows last year and $10.5 billion in the first quarter of 2020 alone.

How did sustainable funds manage to outperform their peers? Such funds generally have little to no exposure to sectors such as energy that were hurt the most by the pandemic. Moreover, these funds are heavy on tech stocks which have by far been the best performers amid widespread market uncertainty.

Notably, the universe of sustainable funds kept growing in the first half of this year, with 23 new funds that were launched in the period. Moreover, there are approximately 20 more funds in registration at SEC. This makes 2020 the sixth consecutive year with more than 20 sustainable fund launches.

Social investing takes into account financial returns from investment as well as social/environmental benefits of the same. While such funds cater to investors’ ethical investment appetite, there are many reasons why investing in such funds would rake in big gains. Let’s have a look.

4 Best Choices

We have selected four socially responsible mutual funds 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).

New Alternatives Fund Class 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. It primarily invests in common stocks of companies and even in other equity securities such as real estate investment trusts and American Depository Receipts 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.

NALFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.08%. The fund has three and five-year returns of 10.4% and 8.8%, respectively.

TIAA-CREF Core Impact Bond Fund Retail Class TSBRX fund invests the lion’s share of its assets in bonds while favoring long-term total return through income and capital growth. The fund gives special consideration to companies that satisfy its ESG criteria. TSBRX invests in a variety of investment-grade bonds and fixed-income securities, which may include corporate bonds, U.S. government securities and taxable municipal securities, among other instruments.

This Zacks sector – Inv Grade Bond-Intermediate 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.

TSBRXhas a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.65%. The fund has three and five-year returns of 4.6% and 3.9%, respectively.

Fidelity Select Environment and Alternative Energy Portfolio FSLEX fund aims for capital appreciation. The product 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.

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 #2 and an annual expense ratio of 0.85%. The fund has three and five-year returns of 2% and 6.4%, respectively.

Pax Ellevate Global Women’s Leadership Fund Individual Investor Class PXWEX seeks returns on investment that exceed the price and yield performance of the Pax Global Women's Leadership Index. The fund invests more than four-fifths of its assets in securities of the components of the Women's index, the likes of which may include American Depositary Receipts, Global Depositary Receipts and Euro Depositary Receipts.

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.

PXWEXhas an annual expense ratio of 0.80%. The fund has three and five-year returns of 6.9% and 7.4%, respectively.

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