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4 Low-Carbon Mutual Funds to Help Battle Climate Change

With the pandemic wrecking havoc across the globe, focus on climate change and the Earth’s declining carbon budget has shifted significantly. And while the climate clock keeps ticking, a data from the Mercator Research Institute on Global Commons and Climate Change shows that we have a little over seven years left until depletion.

According to the United Nations’ latest report, climate change is largely to blame for a near doubling of natural disasters in the past 20 years. The reports states that “7,348 major disaster events occurred between 2000 and 2019, claiming 1.23 million lives, affecting 4.2 billion people, and costing the global economy some $2.97 trillion.” The UN also warns that the sharp increase was largely attributed to extreme weather events like floods, drought and storms.

While many countries have so far failed to keep promises made in 2015 under the Paris Agreement to tackle climate change, actions need to be taken to stop the planet further loss of species and biodiversity, the explosion of urban risk leading to the worst consequences of global warming. However, the UN report does not consider biological hazards and disease-related disasters such as the current coronavirus pandemic, which has taken more than one million lives and infected at least 37 million more, globally.

Most countries and businesses are well aware of the challenge that climate change puts ahead of us. However, solving those problems turn out to be a formidable task. On the contrary, certain human activities that have caused global warming in the last decade, especially burning of fossil fuels, can now be easily replaced by adapting green power like solar energy and by using electric vehicles.

When it comes to investing, one can address climate change by opting for sustainable investing approaches. By investing in these companies or funds, investors can earn money while funding climate change solutions. These funds generally focus on renewable energy providers of energy efficiency companies. So far this year, the iShares Global Clean Energy ETF (ICLN) has jumped 78.6% compared to the S&P 500’s rise of nearly 8%.

And there are perks of sustainable investing. Climate change may offer a systemic risk to the long-term performance of one’s portfolio.Additionally, social and environmental impact based investments or ESG investments, are actually performing better than traditional investments.

Given the current elections perspective, Presidential candidate Joe Biden, calls climate change an “emergency” that requires rapidly rebuild on how America uses energy.He also proposed spending $2 trillion over four years as a starting point and believes that the country needs to zero out greenhouse-gas emissions by 2050 to help avoid the worst consequences of global warming.

These Fund Houses Invest the Least in Fossil Fuel Stocks

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 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 February 2019, the number of Five-badge fossil free funds - funds having no fossil fuel stocks - for Fidelity was 49. Although, American Funds have no fossil-free funds, it has one Carbon Underground 200-free fund.

Top Mutual Fund Choices

We have selected four low-carbon mutual funds with a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), that can play a part in sustainable investing. 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).

Calvert Equity Fund Class A CSIEX aims for growth of capital through investment in stocks believed to offer opportunities for potential capital appreciation. The fund invests majority of its assets in common stocks of companies having market capitalizations that rank among the top 1,000 U.S. listed companies. CSIEX does not invest in any fossil fuel stocks and is a five-badge fossil free fund

This Zacks sector – Large Cap Growth 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.

CSIEX, a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.99%, which is below the category average of 1.05%. The fund has three and five-year returns of 21.7% and 17.1%, respectively.

Parnassus Mid Cap Growth Fund - Investor PARNX aims for capital appreciation. The fund invests majority of its assets in mid-sized growth companies. PARNX does not invest in any fossil fuel stocks and is a five-badge fossil free fund.

This Zacks sector – Large Cap Growth 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.

PARNX, a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.84%, which is below the category average of 1.16%. The fund has three and five-year returns of 11.7% and 11.4%, respectively.

Fidelity Blue Chip Growth FBGRX seeks capital growth for the long run. FBGRX invests the bulk of its assets in those blue-chip companies that Fidelity Management & Research Company (FMR) believes have above-average growth prospects. The fund invests both in U.S. and non-U.S. companies. The fund is invested in only three fossil fuel stocks and holds two fossil free badges.

This Zacks sector – Large Cap Growth 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.

FBGRX, a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.79%, which is below the category average of 1.05%. The fund has three and five-year returns of 28.3% and 22.8%, respectively.

JPMorgan Realty Income A URTAX seeks high total investment return through a combination of capital appreciation and current income. URTAX invests the majority of its assets in equity securities of real estate investment trusts (REITs). URTAX may invest in both equity REITs and mortgage REITs. The fund may also invest a maximum 15% of its assets in illiquid holdings. The fund does not invest in any fossil fuel stocks and is a five-badge fossil free fund.

This Zacks sector – Real Estate 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.

URTAX, a Zacks Mutual Fund Rank #2, has an annual expense ratio of 1.18%, which is below the category average of 1.19%. The fund has three and five-year returns of 2.1% and 3.7%, respectively.

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