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4 Low-Carbon Mutual Funds to Ride the Green Transition Wave

Zacks Equity Research
·7 min read

Years of debate on the ill effects of carbon emission, and the daunting signs of a massive jump in global warming and climate change have forced global leaders to focus on transitioning to a greener and eco-friendlier solution. From fossil fuels to deforestation, waste generation and disposal, companies globally are gearing up to fulfill the agendas of green transition to fit into a greener global economy.

The clean energy revolution taking place globally and especially in the United States has also highlighted the steady expansion of the U.S. renewable energy sector. And why not? Clean energy takes the center stage in Green Transition. The change is backed up by the falling costs of renewables paired with the retirement of older power generation assets.

The Future Lies in Renewables

Per a ReportLinker study, the Global Clean Energy Technologies Market is expected to reach $452.8 billion by 2027, at a CAGR of 6.9% over the analysis period 2020-2027. In fact, the study highlights that the U.S. market is estimated to reach $83.9 billion this year.

Escalating weather events like heat waves and frequent cyclones continue to pose significant challenges to the country’s financial system and threaten the ability to sustain long-term economic growth. The government has been actively engaged in building programs focused on de-risking certain investments and attracting private capital in the clean energy field. The U.S. Department of Energy, the U.S. Department of Agriculture and the U.S. Department of Transportation have already been authorized to encourage clean energy and resilience through the loan and loan guarantee programs that they can deploy to large-scale infrastructure projects.

On the other side, big oil companies are now shifting focus to alternative or green energy to stay afloat in the changing times. And the prospects look quite promising to grab the attention of investors. The International Energy Agency study estimates that renewable energy generation will more than quadruple by 2040. For instance, Valero Energy, one of the world's largest independent oil refiners is focusing on renewable energy. The company operates Diamond Green Diesel, a renewable diesel joint venture with Darling Ingredients.

Changes In Line to Make a Difference

Moving into energy usage, companies like Uber have launched projects like Uber Green in 15 cities in the United States and Canada that use hybrid or electric vehicles. The company states that drivers who use hybrid or electric vehicles to pick up passengers will get an extra 50 cents per ride and using specifically battery-electric vehicles get another dollar on top of that. The company is aiming for 100% rides in electric vehicles by 2030 in the United States, Canada and Europe, and by 2040 for the rest of the world.

Per the California regulators research report, the average ride-hailing trip, per passenger mile, is 50% more polluting than the average car trip. Additionally, climate emissions from EVs are much lower than emissions from the average gasoline vehicle. Hence, this change could reduce carbon emission at large.

In the aviation industry, more than 13 airlines globally, have committed to reach net-zero emissions by 2050. British Airways, Qantas and American Airlines are among the major airlines that have jointly signed on to invest in more fuel-efficient aircraft, sustainable aviation fuels and carbon offsetting to bring their net emissions footprint to zero by mid-century. The aviation industry is responsible for around 3% of global emissions and with recent research revealing that flights will generate around 43 gigatonnes of CO2 emissions by 2050.

4 Top Picks

With the push to transition into a greener global economy that brings high growth prospects, we have selected four low-carbon mutual funds with a Zacks Mutual Fund Rank #1 (Strong Buy). 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).

Fidelity Select Environment and Alternative Energy Portfolio FSLEX aims for capital appreciation. The non-diversified fund invests the majority of its assets in common stocks of companies principally engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.

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 an annual expense ratio of 0.85%, which is below the category average of 1.10%. The fund has three and five-year returns of 4.1% and 8.2%, respectively.

New Alternatives Fund Class A NALFX aims for long-term capital appreciation, with income being the secondary objective. The fund invests in common stocks of YieldCos, American Depository Receipts, real estate investment trusts and publicly traded master limited partnerships.

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 1.08%, which is below the category average of 1.28%. The fund has three and five-year returns of 14.2% and 12.6%, respectively.

Fidelity Select Biotechnology Portfolio FBIOX aims for capital appreciation. The fund invests the majority of its assets in common stocks of companies principally engaged in the research, development, manufacture and distribution of various biotechnological products, services and processes and companies that benefit significantly from scientific and technological advances in biotechnology.

This Zacks Sector – Health 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.

FBIOX has an annual expense ratio of 0.72%, which is below the category average of 1.26%. The fund has three and five-year returns of 11% and 2.8%, respectively.

JPMorgan Large Cap Growth Fund Class A OLGAX aims for long-term capital appreciation. The fund invests the majority of its assets in equity securities of large, well-established companies with market capitalizations equal to those constituting the Russell 1000A Growth Index at the time of purchase.

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.

OLGAX has an annual expense ratio of 0.94%, which is below the category average of 1.05%. The fund has three and five-year returns of 26.6% and nearly 19%, respectively.

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