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3 Weapon-Free Funds to Whet Your Ethical Investment Appetite

Nitish Marwah

Socially responsible investing (SRI) is fast gaining prominence. Also known as social investing, it takes into account financial returns from investment as well as social/environmental benefits of the same.

Ethical investing allows individuals to put money into companies whose practices and values align with their personal views. Lately, many have expressed concerns about being indirectly invested in gun and weapon makers through mutual funds. A number of petitions have been signed as protests against militarism and relaxed gun laws.

While the latest geopolitical developments have led to a rally in defense stocks and increased military spending, ethical investors are increasingly choosing to go weapon-free. Furthermore, the gun violence epidemic is spreading fast. For investors vexed by the rising violence and bloodshed, there are weapon-free mutual funds to consider.

How to Identify Weapon-Free Funds?

Most of the current gun manufacturers in the country are considered small-cap stocks with capitalizations of around $600-$700 million. That said, for investors holding funds which invest in small-cap companies, two out of every three dollars invested in such funds are indirectly contributed to gun stocks. This is because the money goes to indexed portfolios which own all the small-cap stocks and therefore gun manufacturers.

How to Screen Low Weapon Risk Funds?

Weapon Free Funds calculates the total number of flagged holdings in a fund’s portfolio by taking into account the total amount and percentage of the fund’s assets invested in such companies.

Further, Weapon Free Funds categorizes mutual funds into three screen groups, viz., military weapons, civilian firearms, and both military and civilian weapons combined. After closely monitoring the funds, they are awarded one of the following weapon grades:

A – The fund has no direct investments in military weapon manufacturers, civilian firearm manufacturers or civilian firearm retailers.

B – The fund has direct investments in civilian firearm retailers but not in military weapon manufacturers or civilian firearm manufacturers.

F - The fund is invested directly in military or civilian weapon manufacturers, the likes of which include major military contractors and weapon manufacturers.

3 Best Choices

We have, thus, selected three weapon-free mutual funds with a Zacks Mutual Fund Rank #1 (Strong 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 and each of these funds carry a weapon grade A.

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 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. The fund 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. 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 1.12%, which is below the category average of 1.30%. The fund has three and five-year returns of 8.4% and 5.9%, respectively.

Calvert Global Water Fund (A) CFWAX tracks the performance of the Calvert Global Water Research Index. The fund normally invests the majority of its assets in equity securities of domestic as well as foreign companies from the water industries or are involved in water-related service and technologies.

This Zacks sector - Sector-Energy 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 .

CFWAX has an annual expense ratio of 1.24%, which is below the category average of 1.37%. The fund has three and five-year returns of 6.5% and 2.5%, respectively.

Parnassus Core Equity Fund Investor Shares PRBLX seeks to surpass the performance of the S&P 500 by capturing more of the market upside than the downside. PRBLX invests in large-cap companies which have long-term competitive advantage and positive performance on ESG criteria.

This Zacks sector - Large Cap Value 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 .

PRBLX has an annual expense ratio of 0.87%. The fund has three and five-year returns of 14% and 11.2%, respectively.

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