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What are we looking for?

Low-carbon investments from Canadian mutual fund managers.

The screen

The slump in oil demand that accompanied the pandemic last year, causing abysmal returns in energy, may cause some investors to rethink their exposure to the sector. In particular, those who invest actively through fund managers may opt to seek funds that purposefully manage their risks in this area. To this end, I use Morningstar Direct to look for Canadian-domiciled funds that:

  • Are deemed low-carbon or fossil-fuel-free investments based on Morningstar’s sustainable attributes framework, sourced from the funds’ regulatory filings. The idea here is to determine whether it is truly the fund’s intention to invest in a way that reduces exposure to carbon risk. For example, a technology fund is likely to have very little exposure to this type of risk, but this is not necessarily the intent of the fund manager and hence would be excluded in this framework.
  • Have received the Low Carbon Designation from Morningstar. The proprietary designation stems from a bottom-up analysis of a fund’s portfolio and entails two requirements: 1) Individual holdings must have low levels of carbon risk (the degree to which a company’s economic value is at risk in the transition to a low-carbon economy); and 2) a low degree of exposure to fossil fuels, defined by the percentage of revenue derived from individual companies’ involvement in activities such as oil and gas production, thermal coal extraction etc.
  • Have a Morningstar star rating of four stars or greater. As a reminder, the star rating for funds is a look back at a fund’s risk-adjusted returns after fees compared with category peers.

What we found

The funds that met the above requirements are listed in the accompanying table, sorted by Morningstar category, along with their inception dates, trailing performance and management expense ratios. Only fee-based share classes of qualifying funds are displayed here to ensure a reasonable comparison of fees. Investors are urged to pay close attention to the Morningstar category to which each fund belongs to ensure that the fund is appropriate for your overall asset allocation and risk tolerance. For instance, there are two balanced funds on this list that will contain an allocation to bonds and hence will have a very different risk/return profile than a pure equity fund.

This article does not constitute financial advice. It is always recommended to speak with a registered investment adviser or professional before investing.

Low-carbon investments from Canadian mutual fund managers

FundMorningstar CategoryMorningstar Rating MER (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)5Y Ann. Ttl. Rtn. (%)10Y Ann. Ttl. Rtn. (%)15Y Ann. Ttl. Rtn. (%)Inception Date
AGF Global Sustainable Growth Equity FGlobal Equity4 Stars1.1736.416.
BMO Sustainable Opportunities Glb. Eq. FGlobal Equity5 Stars0.8324.615.7n/an/an/a4/28/2016
MD Fossil Fuel Free Equity FGlobal Equity4 Stars0.5417.110.8n/an/an/a10/2/2017
NEI Environmental Leaders Series FGlobal Equity4 Stars1.4423.410.8n/an/an/a1/13/2016
Desjardins SocieTerra Maximum Growth FGlb. Eqty. Balanced5 Stars1.3717.510.69.5n/an/a11/22/2013
Desjardins SocieTerra Growth FGlb. Neutral Balanced5 Stars1.2815.09.28.0n/an/a11/22/2013
Desjardins SocieTerra American Equity FU.S. Equity5 Stars1.1129.020.5n/an/an/a6/14/2016
North Growth U.S. Equity Advisor Series FU.S. Equity4 Stars0.7031.717.915.716.2n/a10/23/2009

Source: Morningstar Direct, data as of Jan. 4. Note: An earlier version of this table contained incorrect performance figures for North Growth U.S. Equities. Those figures are corrected to reflect performance as of Jan. 7. The changes do not affect the outcome of the analysis.

More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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