Top Rated Funds Best Placed to Profit in a Low Carbon World

Analysts reveal the top rated funds that invest in stocks which will be least impacted by the transition to a low-carbon economy

Hortense Bioy, CFA 19 July, 2018 | 10:35AM
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Investors concerned about the impact of carbon risk on their portfolios can use the newly launched Morningstar Low Carbon designation into their fund selection process. The designation is given to funds that invest in stocks which will be least impacted by the transition to a low-carbon economy.

To demonstrate, we used the designation to screen 10 diversified equity Morningstar Categories. As a measure of overall fund quality, we also screened for Morningstar funds the analyst team have evaluated as likely to outperform their benchmark and/or category peers going forward, and have awarded a Gold, Silver or Bronze Rating.

We found that investors have 64 low-carbon top rated funds from which to choose in these 10 categories. However, the choices are not spread evenly across the categories because carbon risk is related to style and, especially, sector exposures. It's easier to earn the Low Carbon designation for a fund that has less exposure to high-carbon-risk sectors and more exposure to low-carbon-risk sectors.

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Hortense Bioy, CFA

Hortense Bioy, CFA  is global head of sustainability research at Morningstar