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4 Funds to Buy as Sustainable Investing Hits Record High

Flows into sustainable funds have been growing steadily in the past few years and funds focused on environmental, social and governance (ESG) assets climbed to $3.9 trillion at the end of September, per a Morningstar report. In fact, environment and climate-focused funds dominate ESG investing, making “E" the magnet drawing in investors. As inflows into both active and passive ESG funds continue to grow, investors should pick funds like Janus Henderson Global Technology and Innovation Fund Class A JATAX, Calvert Equity Fund Class A CSIEX, Parnassus Mid Cap Growth Fund - Investor PARNX and New Alternatives Fund Class A NALFX.

Per the aforementioned report, sustainable funds witnessed $15.7 billion in net inflows during the third quarter of 2021 in the United States, higher than the $9.8 billion seen in the third quarter of 2020. In fact, sustainable fixed-income funds crossed the $2-billion threshold in third-quarter 2020. In the same period this year, it surpassed the all-time record, netting $2.7 billion.

However, there is a drawback to ESG investing. Passive sustainable funds dominate their active peers but by a smaller degree than in the past and attracted net inflows of $9.6 billion in the second quarter of 2021. Quantitative screening is being used by fund houses to identify ESG companies in passive ESG investment. But, they do not tell the entire story and that is where active ESG investing a.k.a. AESG investing comes into play. In ESG investing’s evolution, investors are changing businesses' mindsets. Active ESG investors are inducing changes and remedying major problems with ESG investing. Hence, these new generation investors actively and qualitatively analyze companies’ board and push them to design active and engaging strategies.

For instance, active ESG investors conceive that instead of investing in alternative energy companies, investing in an oil and gas explorer and producer and convincing them to convert operations to renewables does much more for the environment. A number of oil and gas companies have already set net-zero-emission targets and are partnering with changemaker globally. Occidental Petroleum has partnered with Carbon Engineering to build a plant that will capture and bury 500,000 metric tons of carbon dioxide each year.

Investors can engage in active ESG investing and with the government’s influence, changing frameworks, regulations and definitions, ESG integration is gaining popularity, poised to net $25.2 trillion worth of assets globally.

4 Funds to Pick

Given such positives, we handpicked four sustainable investment-based mutual funds. All 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 fund-rating systems, the Zacks Mutual Fund Rank is not just focused on the past performance of the fund but also on its likely future success.

The question here is why should investors consider mutual funds? Reduced transaction costs and portfolio diversification without several commission charges associated with stock purchases are the primary reasons for parking money on the mutual funds (read more:  Mutual Funds: Advantages, Disadvantages and How They Make Investors Money).

Janus Henderson Global Technology and Innovation Fund Class A aims for long-term capital growth. The fund invests the majority of net assets in securities of companies benefiting from advances or improvements in technology.

This Sector-Tech product has a history of positive total returns for more than 10 years.  Specifically, JATAX returns are 34.9% and 30.3% over the past three and five-year periods, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds,  please click here.

Janus Henderson Global Technology and Innovation Fund Class A has a Zacks Mutual Fund Rank of 1 and an annual expense ratio of 0.99% compared with the category average of 1.05%.

Calvert Equity Fund Class A aims for growth of capital through investment in stocks believed to offer opportunities for potential capital appreciation. The fund invests the 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, Calvert Equity Fund Class A has a three and five-year returns of 26.1% and 22.9%, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Calvert Equity Fund Class A has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.94% compared to the category average of 0.99%.

Parnassus Mid Cap Growth Fund - Investoraims for capital appreciation. The fund invests the majority of assets in mid-sized growth companies.

This Zacks Sector – Large Cap Value has a history of positive total returns for more than 10 years. Specifically, Parnassus Mid Cap Growth Fund - Investor has returned 20.2% and 16.4% for the three and five-year periods, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Parnassus Mid Cap Growth Fund - Investor has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.83%, below the category average of 1.09%.

New Alternatives Fund Class A aims for 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 a three and five-year returns of 32.4% and 19.9%, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

New Alternatives Fund Class A has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.96% compared to the category average of 1.26%.

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