Is Coronavirus a Turning Point for ESG Investing? 4 Fund Picks – September 24, 2020

The coronavirus pandemic has sent global economies into recession. While businesses struggle to rebound, environmental, social and governance (ESG) investing has emerged as a key trend globally. Among the innumerable changes that the pandemic has brought about in lifestyle and businesses, ESG investing is one that will have a long-lasting effect. Alongside traditional financial metrics, this investing approach evaluates the ESG ratings of a company.

Investors are closely observing ESG-focused companies’ response to the pandemic and their viability in looking forward. In fact, the ESG factor demands for greater corporate transparency and stakeholder accountability. This has helped ESG funds outperform even during the pandemic-led slump. ESG funds have no exposure to sectors like energy (especially fossil fuels) that were scarred by the pandemic. Rather, focus more on alternative energy and clean technology yielded stellar returns in that time frame.

Per a recent Morningstar report, the number of sustainability-focused funds and their assets has doubled over the past three years. The research firm confirms that by the end of second-quarter 2020, there were 534 index funds focused on sustainability, accounting for a total of $250 billion. In fact, combined inflows into both active and passive ESG-focused funds reached $71.1 billion during the second quarter. This pushes the global assets under management above the $1-trillion mark for the first time.

The pandemic has acted as the turning point in ESG investing. Investors will continue to put money into companies that responded to the coronavirus crisis by focusing on long-term goals rather than looking for near-term profit at all costs. So far this year, the iShares MSCI Global Impact ETF (SDG) has jumped 19.8% compared to the S&P 500’s rise of 2.6%.

After all, the crisis has underscored the importance of resilient business models and shown investors how companies treat all their stakeholders (including employees and customers) and how it impacts the bottom line. Per a recent report, during the second quarter, 56% of sustainable funds ended in the top half of their Morningstar category.

4 Top Fund Picks

We have selected four ESG mutual funds with a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to grow. 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 Free Report) fund aims for capital appreciation. The fund invests majority of its assets in securities of companies that provide business services related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies or other environmental support.

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 a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.85% compared to the category average of 1.10%. The fund has three and five-year returns of 7.9% and 11.6%, respectively.

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 its 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. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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

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.

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 a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.08% compared to the category average of 1.28%. The fund has three and five-year returns of 16.4% and 15.8%, respectively.

TIAA-CREF Core Impact Bond Fund Retail Class (TSBRX Free Report) invests the lion’s share of its assets in bonds and seeks total return through current income. The fund gives special consideration to companies that satisfy its ESG criteria. TSBRX invests in a variety of investment-grade bonds and fixed-income securities, which may include corporate bonds, U.S. government securities and taxable municipal securities, among other instruments.

This Zacks sector – Inv Grade Bond-Intermediate 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.

TSBRX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.65% compared to the category average of 0.80%. The fund has three and five-year returns of 4.7% and 4.1%, respectively.

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