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What are we looking for?

Low-carbon options for the do-it-yourself fund investor.

The screen

On the heels of a recent proposal by the Canadian Securities Administrators to require domestic issuers to begin providing climate change-related disclosures, this week marks the start of COP26, the United Nations climate summit at which world leaders make tangible pledges to reduce climate risk.

At this point, investors would be hard-pressed not to consider, at least, the idea that climate-related risks will ultimately affect their portfolios. Given that Canada’s economy still largely depends on the production of oil and gas, and the fact that the goal of COP26 is to secure a transition to a low-carbon economy, today I use Morningstar Direct to look for Canadian-domiciled mutual funds and exchange-traded funds that exhibit low-carbon characteristics. To do so, I screened the Morningstar database for those that have:

  • Stated the intent to focus on low-carbon/fossil fuel-free investments within their prospectus documents, as captured by the Morningstar sustainable attributes framework;
  • Awarded Morningstar’s low carbon designation, which hinges on the funds’ holdings exhibiting low degrees of carbon risk as well as deriving limited revenue from the production of fossil fuels. The concept here is essentially to identify funds that are well positioned (based on their holdings) as the world transitions to a carbon-free economy.
  • Receive a Morningstar star rating of three stars or better (out of five). As a reminder, the star rating is a look back at a fund’s risk-adjusted, after-fee returns compared with peers in the same fund category.

Only funds available through discount brokerages and ETFs were considered in the screen.

It is important to note here that Morningstar awards the low-carbon designation to any fund that meets the stated requirements, regardless of the fund manager’s intent to do so. For example, many technology-focused funds tend to have low exposure to carbon-risk, as is their nature, though the managers’ intent may not necessarily be to target low-carbon investments. Hence, with the sustainable investor in mind, today’s screen focuses solely on funds that have a stated intent to invest in this manner.

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.

What we found

Nine low-carbon options

FundTickerMorningstar CategoryMER (%)Morningstar Rating OverallInception DateYTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)Basic Mat'ls (%)Comm. Serv. (%)Cons. Cyclical (%)Cons. Def. (%)Health Care (%)Indust. (%)Real Estate (%)Tech. (%)Energy (%)Fin'l Serv. (%)Utilities (%)
Desjardins SocieTerra Positive Change Dn/aGlobal Equity1.595 Stars2018-09-0518.640.335.75.50.714.53.132.313.00.017.80.07.13.5
Sustainable Opp Global Equity Dn/aGlobal Equity1.165 Stars2016-04-2813.427.219.17.22.47.92.817.619.63.620.70.015.31.7
MD Fossil Fuel Free Equity Dn/aGlobal Equity1.194 Stars2018-06-2510.521.114.94.113.69.910.217.68.30.014.90.010.60.0
Desjardins SocieTerra Environment Dn/aGlobal Equity1.533 Stars2018-05-1115.028.414.212.91.93.04.121.213.53.120.90.018.00.0
Desj. RI Dev exUSA/exCda MF Low CO2 ETFDRFD-TInt'l Equity0.693 Stars2018-09-277.920.37.66.96.19.510.213.718.46.310.01.912.83.2
Desjardins SocieTerra International Eq Dn/aInt'l Equity1.523 Stars2018-09-055.619.69.88.84.49.218.323.616.10.07.30.07.10.0
Desjardins RI USA Low CO2 ETFDRMU-TUS Equity0.294 Stars2018-09-2718.128.819.90.75.513.36.515.34.62.835.90.813.31.1
Desjardins RI USA Multifactor Low CO2 ETFDRFU-TUS Equity0.573 Stars2018-09-2718.527.814.71.05.59.78.715.110.04.427.22.213.42.6
Desjardins SocieTerra American Equity Dn/aUS Equity1.475 Stars2018-05-1116.729.624.31.43.616.55.215.57.91.429.10.016.21.6

Source: Morningstar Direct; data as of Nov. 2

The mutual funds and ETFs that meet the above requirements are listed in the accompanying table, alongside their star rating, management expense ratios, trailing performance, inception dates and Morningstar category. Also included are fund weightings by sector; note that the funds have little to no exposure to the energy sector.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

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

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