Green mutual funds are no longer a fad. The idea of investing in companies and technologies that make our world a better, cleaner place has merit. But if you want to find the top green mutual funds, be clear on two things before you start your search: your motive and priorities.
Are you primarily concerned about making money? And is “green investing” a secondary consideration? If so, you’ll be able to cast a wider net. Simply compare mutual funds, find the best ones and then weed out those investing in the wrong companies or industries.
You can do that by looking at your fund’s prospectus or going to the fund’s website. You’ll easily find the top holdings – or all the holdings a fund has.
But let’s say making money isn’t your main goal. Let’s say you want to support certain industries like solar or wind energy. If this is the case, you’re probably going to be best served by finding an ETF that is focused in these industries. Better yet, invest directly in the companies you want to support.
Now, if your main motive is political rather than financial, don’t get confused down the line. Forget about short-term performance. My experience tells me it’s impossible to make smart investments when you have more than one main objective.
This is not to say that you can’t make money investing in green mutual funds or individual companies. I am sure you can. But if you expect to go green and also own top performing funds, you’re going to face long periods of disappointment.
There will be periods when green mutual funds do well. But it’s such a narrow niche that over many years, your fund won’t often be among the top performers.
Another word of caution: not all funds that claim to be green actually are. Actively managed funds are managed with great discretion. As a result, while many hold themselves out to be green, some may not be.
In fact one major green fund advertised as green and socially responsible, but the top ten holdings include IBM, General Mills and 3M. This is closer to a large cap fund than a green fund.
As I said before, if you compare ETFs versus mutual funds, ETFs are probably a better bet because they are more transparent and leave less discretion to the fund manager.
Now, if you are a fan of capitalism, you might not want to target green funds for investment but simply invest in top performing funds. If the green mutual funds do well, they’ll rise to the top and get on your buy list that way. To be frank, that’s my approach.
Do you invest in green mutual funds or companies? Do you hold those investments up to the same scrutiny as your other investments? How have they done so far? Do you even care about the performance?