4 Sustainable Funds To Buy As ESG Continues To Gain Prominence

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Environmental, social and governance (ESG) investing or investments that consider the environmental, social, and corporate governance impact of a company has emerged as winners in this pandemic. In the third quarter, assets in sustainable mutual funds and ETFs globally hit a record $1.2 trillion, according to Morningstar. This is 19% higher than that of the second quarter and assets in sustainable funds jumped to $179 billion, up 12.5% from the quarter ending June 2020. Per a Morningstar report, net inflows in ESG funds globally jumped 14% in the third quarter to nearly $81 billion.

During the pandemic, technology and healthcare stocks have gained prominence as remote working and stay-at-home trends pushed technology stocks higher and progress in coronavirus vaccine boosted healthcare players. Most ESG funds are tech-heavy and have significant exposure to medical stock hence; the rally behind these socially responsible funds is self-explanatory.

In the second quarter, investors pulled an estimated $137 billion out of stock funds. However, ESG investors put in $9.3 billion into stock funds. According to the Forum for Sustainable and Responsible Investment (US SIF) estimates, as the pandemic continues to rattle the world economy and with the strong prospects of ESG funds, the U.S. sustainable investing assets could go up to $17.1 trillion in 2020. This would be a 42% jump from 2018’s figure. Even post-pandemic, the demand for these funds may continue as many companies have smartly deployed their capital to confront climate change and alter corporate governance policies to improve human rights.

Given the current global scenario, rise in new cases is constantly hindering the economy’s recovery. However, these ESG-focused companies have a long-term outlook and will not only survive the hurdles posed by the pandemic but will also rally as the economy recovers post-pandemic. So far this year, the iShares MSCI Global Impact ETF (SDG) has increased 36.6% compared with the S&P 500’s rise of 12.4%.

4 Funds to Buy

We have, therefore, shortlisted four sustainable 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 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.

New Alternatives Fund Class A (NALFX - Free Report) 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. NALFX has a three and five-year returns of 17.9% and 17%, respectively.

This Zacks sector – Other product has a history of positive total returns for more than 10 years.

NALFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.08% compared to the category average of 1.28%.

Calvert Equity Fund Class A (CSIEX - Free Report) aims for growth of capital through investment in stocks believed to offer opportunities for potential capital appreciation. The fund invests majority of assets in common stocks of companies that rank among the top 1,000 U.S.-listed companies. CSIEX has a three and five-year returns of 18.2% and 15%, respectively.

This Zacks Large Cap Growth product has a history of positive total returns for more than 10 years.

CSIEX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.99% compared to the category average of 1.04%.

Fidelity Select Environment and Alternative Energy Portfolio (FSLEX - Free Report) fund aims for capital growth. The fund invests majority of assets in securities of companies mostly engaged in activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies or other environmental support services. The non-diversified fund invests in U.S. and non-U.S. issuers alike. FSLEX has a three and five-year returns of 3.4% and 9.5%, respectively.

This Zacks Sector – Other has a history of positive total returns for more than 10 years.

FSLEX has an annual expense ratio of 0.85%, which is below the category average of 1.04%.

Parnassus Mid Cap Growth Fund - Investor (PARNX - Free Report) aims for capital appreciation. The fund invests majority of assets in mid-sized growth companies. PARNX has a three and five-year returns of 9.7% and 10.2%, respectively.

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