Fidelity’s Best ESG Funds!

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Fidelity’s Best ESG Funds

Fidelity offers hundreds of different ESG fund options. With so many funds to choose from, it can be pretty easy to become overwhelmed trying to decide which ESG funds might be right for you.

This article will show you a few of Fidelity’s best ESG funds. We’ll rank Fidelity’s top 5 ESG funds by performance. Not only that, but we’ll go through the process of searching for ESG funds so you can compare these for yourself. That way you can do your own research and choose which funds may work best for you.

Fidelity’s “Top Five” ESG Funds?

We are looking at ESG funds through Fidelity today because one of my subscribers specifically asked me to look at Fidelity’s ESG fund options. “Thanks for the video! Could you do one talking about Fidelity’s ESG mutual funds?” Carsend mentions a few specific funds and just wants to make sure he’s making a good choice. I think we can all relate to that.

Well, let’s go to Fidelity’s website and see what they have to offer. If you go to Fidelity’s research page for mutual funds and select their “Socially Responsible” fund strategy, this will bring up a total of 206 different funds.

So let’s look at Fidelity’s top 5 performing socially responsible mutual funds ranked by performance over the last year. I’m only going to briefly touch on each fund because as you’ll soon see, some of these funds may not be right for everyone.

5. Ariel Fund Investor Class (ARGFX)

Starting with number 5 on our list is the Ariel Fund Investor Class, ARGFX. This fund has a performance of 36.14% over the last year and has an expense ratio of 1.04%. It is a mid-cap value fund with a minimum investment requirement of $2,500. This fund is the oldest on the list and has been around since 1986.

  • 1 Yr Performance: 36.14%
  • Expense Ratio: 1.04%
  • Fund Type: Mutual Fund
  • Fund Category: Mid-Cap Value
  • Holdings: 40
  • Minimum Investment: $2,500
  • Morningstar Rating: 4/5
  • Fund Inception: 1986

4. Fidelity® Environment and Alternative Energy Fund (FSLEX)

Next up on our list is the Fidelity® Environment and Alternative Energy Fund, FSLEX. This fund has a 1-year performance of 37.57% and an expense ratio of 0.85%. This fund invests in companies related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.

  • 1 Yr Performance: 37.57%
  • Expense Ratio: 0.85%
  • Fund Type: Mutual Fund
  • Fund Category: Industrials
  • Holdings: 58
  • Minimum Investment: $0
  • Morningstar Rating: 5/5
  • Fund Inception: 1989

3. Pax Small Cap Fund Investor Class (PXSCX)

Number 3 on our list is the Pax Small Cap Fund Investor Class, PXSCX. This fund has a 1-year performance of 38.63% with an expense ratio of 1.19%. This is a small-cap mutual fund with a minimum investment requirement of $2,500.

  • 1 Yr Performance: 38.63%
  • Expense Ratio: 1.19%
  • Fund Type: Mutual Fund
  • Fund Category: Small-Cap Blend
  • Holdings: 265
  • Minimum Investment: $2,500
  • Morningstar Rating: 4/5
  • Fund Inception: 2008

The last two funds on this list are pretty similar. The main difference is that one is built for institutional investors and the other is meant for individual investors.

2. Aberdeen U.S. Sustainable Leaders Smaller Companies Fund Class A (MLSAX)

Coming in at number two is the Aberdeen U.S. Sustainable Leaders Smaller Companies Fund Class A, MLSAX. This is the fund designed for individual investors. It has a 1-year performance of 39.59% with an expense ratio of 2.13%. Because this is a Class A mutual fund it also comes with a sales load so the expenses are higher on this one.

  • 1 Yr Performance: 39.59%
  • Expense Ratio: 2.13%
  • Fund Type: Mutual Fund
  • Fund Category: Small-Cap Growth
  • Holdings: 187
  • Minimum Investment: $2,500
  • Morningstar Rating: 5/5
  • Fund Inception: 2001

1. Aberdeen U.S. Sustainable Leaders Smaller Companies Fund Institutional Service Class (AELSX)

And finally, number one on our list is the Aberdeen U.S. Sustainable Leaders Smaller Companies Fund Institutional Service Class, AELSX. This fund has a whopping 1-year performance of 39.76%. It also has a whopping one million dollar minimum investment requirement. But that is because this is a fund meant for the big institutional investors like banks, insurance companies, and hedge funds.

  • 1 Yr Performance: 39.76%
  • Expense Ratio: 1.93%
  • Fund Type: Mutual Fund
  • Fund Category: Small-Cap Growth
  • Holdings: 96
  • Minimum Investment: $1,000,000
  • Morningstar Rating: 5/5
  • Fund Inception: 2006

Again, I intentionally went through these funds quickly because while these funds show up at the very top of the list as far as one-year performance goes, that doesn’t mean these funds are right for everyone.

I think the fund at the very top of the list, AELSX, is a great example of this. Because that fund is built for institutional investors, it has a minimum investment requirement of one million dollars. I don’t know about you, but that requirement rules that fund out for me.

How You Can Find Fidelity’s Best ESG Funds!

So let’s try this one more time but this time let’s look for some funds that may be a better fit for “regular” investors. Fidelity has some great research tools and screeners. Their screeners offer a ton of options for narrowing down investments based on your own investment preferences or philosophy.

Fidelity allows you to narrow down investments by performance, fund type, expense ratios, minimum investment, inception date, volatility, and even ESG specific criteria. And that’s only a small list of their total available screening options. I highly recommend going through Fidelity’s full list of screening criteria so you can find the funds that best fit your own investment goals.

I’m going to go through this process just to show you how I might go about researching ESG funds. That being said, none of this should be taken as investment advice. You likely have different investment goals than I do and I am not your financial advisor.

To start, I am not specifically interested in mutual funds so what I’m going to do first is broaden my fund options to include exchange-traded funds. That’s an easy change to make and can be done by clicking “Include ETFs” on the mutual funds screener. This bumps up my total fund options from 206 to 437.

I will then go ahead and narrow this right back down again… Personally, if I’m interested in investing in an ETF or a mutual fund then I’m looking for a passive investment. I am not interested in actively managed funds. So I’ll select the “Index” option under the “Management Approach” criteria. This brings my total fund options down to 178.

I’m also pretty cheap (actually, let’s say “frugal”) so I’m only going to look at the funds with the lowest expense ratios. I’ll select this using the “Net Expense Ratio” criteria.

I also want to see that a fund has a proven track record so my preference is to screen out any funds that haven’t been around for at least 5 years. You can use the “Inception Date” filter for this.

Personally, I don’t want to deal with minimum investments so you can use the “Minimum Investment” criteria to choose your own preference here. Just watch this because many mutual funds do require some type of minimum investment so if you are specifically interested in mutual funds then you may not want to eliminate this requirement.

This leaves us with a grand total of 43 different ESG fund options to choose from.

Fidelity’s True “Top Five” ESG Funds

I prefer to look at investing from a longer-term perspective so let’s look at the average annual performance over the last 5 years to identify our top-performing funds. Keep this in mind since in our last list we were only looking at the performance over the last year. So these numbers will be pretty different. With that said, let’s take a look at the new (and in my personal opinion, improved) list of top ESG Funds from Fidelity.

5. FlexShares STOXX US ESG Select Index Fund (ESG)

First up on our list is the FlexShares STOXX US ESG Select Index Fund (ESG). This fund has an average annual performance of 18.56% over the last five years. It is a large-cap blended fund and has an expense ratio of 0.33%.

I also want to point out that all of the funds on our new ESG fund list, including this one, are exchange-traded funds. This particular fund has 278 holdings which are all primarily located in the U.S.

  • 5 Yr Performance: 18.56%
  • Expense Ratio: 0.33%
  • Fund Type: Exchange-Traded Fund
  • Fund Category: Large-Cap Blend
  • Holdings: 278
  • Minimum Investment: $0
  • Morningstar Rating: 5/5
  • Fund Inception: 2016

4. iShares MSCI KLD 400 Social ETF (DSI)

Coming in at number 4 on this list is the iShares MSCI KLD 400 Social ETF (DSI). This fund has a 5-year average annualized performance of 18.77% and has an expense ratio of 0.25%. It is a large-cap blended fund and has been around since 2006.

Another interesting note about this fund is that if you look at average annual performance over the last 10 years, this fund is actually ranked first by Fidelity. This piqued my interest so I’ll probably be looking at this one a little more at some point in the future. If you happen to have any interest in me doing a deeper dive on this fund then let me know in the comments below.

  • 5 Yr Performance: 18.77%
  • Expense Ratio: 0.25%
  • Fund Type: Exchange-Traded Fund
  • Fund Category: Large-Cap Blend
  • Holdings: 407
  • Minimum Investment: $0
  • Morningstar Rating: 5/5
  • Fund Inception: 2006

3. Etho Climate Leadership U.S. ETF (ETHO)

At number three is the Etho Climate Leadership U.S. ETF (ETHO). This fund has a 5-year average annual performance of 18.81% and an expense ratio of 0.48%. It is a mid-cap growth fund. The only thing that concerns me a little bit about this fund is that it has a morningstar rating of 3 out of 5. I honestly put very little stock into Morningstar ratings. But I just wanted to point this out for those of you who do prioritize this.

  • 5 Yr Performance: 18.81%
  • Expense Ratio: 0.48%
  • Fund Type: Exchange-Traded Fund
  • Fund Category: Mid-Cap Growth
  • Holdings: 265
  • Minimum Investment: $0
  • Morningstar Rating: 3/5
  • Fund Inception: 2015

2. iShares MSCI USA ESG Select ETF (SUSA)

Our number two fund on the new and improved list of Fidelity’s best ESG funds is iShares MSCI USA ESG Select ETF (SUSA). This fund has an average annual performance of 19.27% over the last five years. It also has an expense ratio of 0.25%. It is a large-cap blended fund and has been around since 2005. This is probably another one I’ll take a closer look at since this fund is ranked second in performance over the last 10 years by Fidelity.

  • 5 Yr Performance: 19.27%
  • Expense Ratio: 0.25%
  • Fund Type: Exchange-Traded Fund
  • Fund Category: Large-Cap Blend
  • Holdings: 187
  • Minimum Investment: $0
  • Morningstar Rating: 5/5
  • Fund Inception: 2005

1. iShares Global Clean Energy ETF (ICLN)

And last but certainly not least… The top-ranked ESG fund on this list is the iShares Global Clean Energy ETF (ICLN). This is actually a fund I own in my own portfolio. This ETF has a 5-year average annual performance of 26.41% and has an expense ratio of 0.42%. This fund invests in companies involved in clean energy and it covers both developed and emerging markets.

One thing to keep in mind here is that most people choose mutual funds and exchange-traded funds for ease of use and diversification. The iShares Global Clean Energy ETF alone may not be suitable for something like a one-fund portfolio since this fund covers a very specific ESG sector rather than trying to capture something like the total stock market. But this fund could be a decent supplement or addition to a portfolio. And again, this all depends on what you’re looking for. If you wanted to strictly look at large-cap ESG funds you can set that filter on Fidelity’s screener.

  • 5 Yr Performance: 26.41%
  • Expense Ratio: 0.42%
  • Fund Type: Exchange-Traded Fund
  • Fund Category: Miscellaneous Sector
  • Holdings: 96
  • Minimum Investment: $0
  • Morningstar Rating: N/A
  • Fund Inception: 2008

Which Funds Are Best?

I just wanted to briefly talk about how our previous top-five list compares to our new list when reviewing performance over the last five years. The 5-year performance of the previous funds ranges from 10.43% to 19.32%. There are also much higher fees with the first set of funds since they are actively managed. Some of those fees are as high as 2% or more.

The performance of the funds on our new lists ranges between 18.56% and 26.41%. Again, not every investment is right for every person but hopefully, this article helps you discover some new ESG funds.

You probably know what I’m going to say next… Past performance is no guarantee of future results. But it is an indicator. Remember that these are the top five funds based on the specific set of criteria that I selected. This list will probably look different for you based on the criteria you use and your own personal investment philosophy.

ESG Investing?

I also just wanted to make one last quick point. Looking at Vanguard’s S&P 500 index fund, VOO, the average annual performance of the S&P 500 over the last five years is 17.83%. All of Fidelity’s top ESG funds beat the performance of the S&P 500 over this period. That is even taking any added fees and expense ratios into account. I think this is something that deserves some recognition.

What are your thoughts about these two lists? I use a few different brokerages but I have to say I love Fidelity’s research tools and screeners. Fidelity also has a screener that works similarly for stocks as well. If you have any interest in me creating an article covering this process for ESG stocks just let me know in the comments below.

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