Microsoft, Tesla Fuel ESG Gains for 32-Year-Old Fidelity Fund
(Bloomberg) -- Hundreds of billions of dollars are pouring into new or conveniently renamed funds billed as good for the environment and society.
But one Fidelity Investments mutual fund that’s been around for more than three decades is among this year’s best-performing sustainability-focused funds, with a 24% return, driven by shares of Microsoft Corp. and Tesla Inc., its top holdings.
The $875 million Fidelity Environment & Alternative Energy Fund, launched in 1989, is designed to focus on water infrastructure, waste and recycling technologies, renewable energy and pollution control.
While its holdings also include renewables giants Vestas Wind Systems A/S and NextEra Energy Inc., Microsoft and Tesla account for more than a quarter of its total assets, according to the latest available data compiled by Bloomberg. Shares of the two firms have outperformed the S&P 500 this year, gaining 46% and 32%, respectively, through last week.
Elon Musk’s Tesla is a “visionary company” that’s moving a fossil fuel-intensive industry toward a greener future, the fund’s co-manager, Asher Anolic, said in a phone interview. Microsoft’s cloud-computing platform helps businesses offload work from traditional offices and become more efficient in terms of carbon emissions, he said.
“The bar that we’re setting is you can’t just be a tech company with good ESG metrics,” Anolic said. “There has to be a clear link between what you do and the problem we’re fundamentally trying to solve.”
The fund, which he began to help oversee in July, was among the top-performing actively managed, sustainability-focused mutual funds with at least $100 million of assets, according to Morningstar Inc. data through November. The vehicle, with additional stakes in industrial gas companies and fuel-cell technology firms, has more than doubled over the past year, fueled by about $500 million of net inflows.
The results show that holdings in Big Tech are continuing to play a significant role in funds pursuing environmental, social and governance goals. Many of last year’s ESG winners bet big on solar technologies only to see their returns decline by more than 20% this year.
ESG funds have long held substantial stakes in tech firms that can have lower carbon footprints than industrial or energy businesses. Large tech companies have also touted their ESG credentials to the public. Last year, Google parent Alphabet Inc. said that its lifetime net carbon footprint was zero. And Microsoft outlined a goal of being carbon negative by 2030, meaning it will remove more carbon than it emits.
But Tesla, which is pioneering the electric-vehicle revolution, has also drawn criticism of its corporate governance, in particular Musk’s confrontations with the U.S. Securities and Exchange Commission on Twitter.
Microsoft, Tesla, Alphabet, Apple Inc., Amazon.com Inc. and Nvidia Corp. were among the top holdings of seven of the 10 best-performing sustainability funds through November, the Morningstar data show.
The Brown Advisory Sustainable Growth Fund, with $7.1 billion of assets, ranked among the top performers this year and last. Its three largest holdings are Microsoft, Intuit Inc. and Alphabet, which together account for 13.5% of the fund’s assets, according to data compiled by Bloomberg. The Brown fund has returned 26% this year.
“We have not focused on intentionally building a portfolio around an external definition of ESG or thematic exposure to areas such as solar or renewable energy,” fund co-manager Karina Funk said in an email.
Instead, she said, her team is looking for companies that “integrate sustainability into their business in a way that gives them a competitive advantage, like solving for some of the world’s biggest environmental and social challenges through their products or services -- or being responsible operators of their own resources in a way that helps cut costs and bolster their brand.”
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