So, is “go woke, go broke” truth, or just more hype from the political noise machine? Nothing is absolute: Like every other kind of fund, the quality of green mutual funds varies. Many have handily beaten the S&P 500 for most of their lifetimes. Others, not so much.
Green funds are a subset of the environmental, social and governance, or ESG, movement that pays especially close attention to environmental factors. These funds usually exclude oil and gas companies — GOP presidential candidate Vivek Ramaswamy, on the other hand, launched an exchange-traded fund through his Strive Asset Management firm called Strive U.S. Energy ETF (ticker: DRLL) that invests in little else. That fund has slightly underperformed the S&P 500 since its 2022 launch.
Politicians’ wars on ESG investing haven’t had much impact. Florida Gov. Ron DeSantis, for example, has boasted of taking $2 billion of pension funds out of BlackRock accounts to protest the firm’s use of ESG criteria as one investment factor. But compared to the $9.4 trillion BlackRock has under management, or even the $2.5 trillion invested in ESG funds worldwide, numbers like those matter little. Indeed, BlackRock boosted assets under management by $831 billion in the first half of 2023.
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“One of the biggest reasons we haven’t seen more traction behind the anti-ESG backlash is because asset managers and investors have generally come to realize that ESG risks can be and often are financially material,” Morningstar associate director of sustainability research Alyssa Stankiewicz said. “Managing these risks is just prudent investing.”
Despite a drop in 2022, sustainable funds outperformed conventional peers more often than not over the trailing three- and five-year periods, Stankiewicz said. “Five years ago, if you didn’t give a hoot about investing sustainably, if you were only interested in maximizing financial returns, you were better off in a sustainable large-blend equity fund than in one of the conventional alternatives,” she added.
There are more than 550 clean energy ETFs and funds to choose from. Here are some green mutual funds to buy, all of which have beaten the S&P 500 over the last five years:
| Green mutual fund | Expense ratio |
| Fidelity U.S. Sustainability Index Fund (FITLX) | 0.11% |
| Guinness Atkinson Alternative Energy Fund (GAAEX) | 1.1% |
| Vanguard FTSE Social Index Fund (VFTAX) | 0.14% |
| Shelton Sustainable Equity Fund (NEXTX) | 1.16% |
| Calvert Global Energy Solutions Fund (CGAEX) | 1.24% |
Fidelity U.S. Sustainability Index Fund (FITLX)
A four-star Morningstar-rated fund, FITLX has returned 12.9% annually since its 2017 inception. Add in a low 0.11% management fee, and the numbers work: It has beaten the average large-cap equity blend fund’s gains by 14% since inception, and ranks 93rd out of nearly 3,000 growth and income funds in its Lipper peer group over the last five years.
The firm works mostly on a “first do no harm” principle. Aside from electric-vehicle leader Tesla Inc. (TSLA), few of its top holdings make overtly environmentally focused products. Instead, it concentrates on companies like Microsoft Corp. (MSFT) and Mastercard Inc. (MA) that run mainstream businesses in an environmentally responsible way.
More than half of its holdings are in technology, finance or health care companies, with less than 4% in energy and utility firms. So, this is not the fund to concentrate on wind turbines or solar panels. It’s a low-key environmental fund heavy on companies that may use wind or solar to power data centers or chip factories.
Guinness Atkinson Alternative Energy Fund (GAAEX)
This $33 million four-star fund is exceptionally small, but has been mighty, returning 114% over the last five years (the S&P 500 is up about 62% over that period). Much more than the Fidelity fund, it’s explicitly green. Top holdings include renewable-power producer NextEra Energy Inc. (NEE); chipmaker On Semiconductor Corp. (ON), whose solar inverters and other power solutions make solar panels more efficient; French digital-automation and energy management giant Schneider Electric SE (SBGSY); and EV battery maker LG Chem Ltd. (051910.KS).
The expense ratio, at 1.1%, is much higher than Fidelity’s fund because of the Guinness fund’s smaller scale.
The kinds of companies the fund favors have room to grow. LG supplies Tesla, among other automakers, and will ride the expected climb of EVs’ share of the global light-vehicle market to 18% this year from 14% in 2022, according to the International Energy Agency. Wind and solar power surpassed coal’s U.S. market share in early 2023 and will benefit from tax credits passed in 2022.
[SEE: 7 of the Best High-Dividend ETFs.]
Vanguard FTSE Social Index Fund (VFTAX)
This 4-year-old index fund uses an index that excludes so-called “sin stocks” selling fossil fuels, weapons or cigarettes, among other things, but it has also beaten the S&P 500 this year by rising 23% to the S&P 500’s 18.2% through July 27. Three-year gains of 45% beat the market by four percentage points as well.
This is explicitly a growth fund, with an average profit growth rate of 19% among its holdings. Its 400-plus stocks are led by Apple Inc. (AAPL), a huge promoter of renewable power use in its supply chain partners; Nvidia Corp. (NVDA), whose chips are part of smart grids to enable energy savings and transition to renewables; and Tesla. Its $8.3 billion in assets help keep its expense ratio to a low 0.14% of assets.
Shelton Sustainable Equity Fund (NEXTX)
Up about 100% over the last five years, this roughly $200 million fund has been sluggish this year, rising just 11%. It’s positioned to play the long game, earning a five-star Morningstar rating for risk-adjusted investing.
It owns some familiar names like Tesla and First Solar Inc. (FSLR), but about 40% of its portfolio is classified as industrial, and includes water transport technology maker Xylem Inc. (XYL), biofuels and regenerative agriculture company Bunge Ltd. (BG) and even Deere & Co. (DE).
High fees are a negative, with an expense ratio of 1.16%. Its beta, a measure of volatility, is also 1.16, indicating volatility that’s greater than the overall market.
Calvert Global Energy Solutions Fund (CGAEX)
Up about 72% over the past five years, this $186 million fund owns shares of EV makers in the U.S. and China; industrial conglomerate Eaton Corp. PLC (ETN), which is involved in next-generation electric grids and other greentech; and sustainable heating and air maker Trane Technologies PLC (TT).
The fund’s expense ratio is high at 1.24%. But Morningstar rates it five stars for risk-adjusted returns over the last five years — not compared to other ESG funds, but to small- to-mid-cap stock funds generally. Now 16 years old, it was among the first ESG funds. Be aware that this fund also carries a rather high maximum 5.25% sales charge when you buy in, known as a “front load,” that will impair returns in a way the previous funds do not.
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5 Green Mutual Funds to Buy Now originally appeared on usnews.com
Update 07/28/23: This story was previously published at an earlier date and has been updated with new information.
Correction 07/31/23: A previous version of this story misnamed the Shelton Sustainable Equity Fund (NEXTX).
