Pandemic Drives Changes in Investment Landscape: 4 Fund Picks – December 3, 2020

The COVID-19 pandemic has been ravaging the globe for almost a year now. Along with causing severe damage to human life and the global economy, it has brought about significant changes in lifestyle and investment patterns. The pandemic has set certain long-term trends as the world is rapidly evolving to become more digitalized, automated and sustainable.

With remote working practices continuing even after the lockdowns have been eased, companies are prepared to undergo profound changes. According to a report by McKinsey, nearly 55% of products and/or services have been fully or partially digitized as of July 2020, compared with 35% in December 2019 and 28% in May 2018, globally. Across North America, as of July 2020, 60% of products and/or services were fully or partially digitized, compared with 41% and 34% in December 2019 and May 2018, respectively.

Industries such as healthcare, pharmaceuticals, financial services and professional services picked up the agenda of digitalization much before the pandemic but the rapid transformation can be attributed to the virus scare. In fact, the jump in digitization in the aforementioned industries was almost twice of that in consumer packaged goods industries (ecommerce to be specific) during the pandemic.

Now with 5G gradually entering markets, digital transformation will speed up and definitely bring about changes in the investment landscape. Per a recent annual outlook report by UBS AG,real-time automation, enhanced video services, monitoring and tracking, connected vehicles, augmented reality and other areas will give 5G technology an annual revenue potential of $619 billion.

The fourth industrial revolution was already giving automation and robots a greater role to play, but with the pandemic, millions have lost their jobs as factories have replaced men with robots to maintain social distancing and stay in business. In fact, automation has helped ecommerce companies cater to customers through online platforms.

What’s more? The pandemic has pushed investors toward sustainable investing as they focus more on environmental, social and governance (ESG) aspects rather than sticking to short-term profit goals. According to Morningstar, asset under management in ESG funds has topped $1 trillion for the first time this year.

These ESG stocks have not only stayed afloat while people worldwide suffer heavy losses from natural disasters, but they are likely to stay in momentum when the economy rebounds. Many companies have smartly deployed capital to confront climate change and alter corporate governance policies to improve human rights. According the Forum for Sustainable and Responsible Investment (US SIF) estimates, as the pandemic continues to rattle the world economy and with the strong prospects of ESG funds, the U.S. sustainable investing assets could go up to $17.1 trillion in 2020, a 42% jump from the 2018 figure.

4 Funds to Buy

Given the current transformation in investment landscape, we have shortlisted four mutual funds that have significant investment in companies that engage or facilitate in digitization, automation and sustainability.  All these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). In addition, the minimum initial investment for these funds is within $5,000.

We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Franklin DynaTech Fund Class A (FKDNX Free Report) aims for capital appreciation. The fund invests primarily in common stocks and the fund manager focuses on companies that are leaders in innovation, take advantage of new technologies, have superior management, and benefit from new industry conditions.

This Sector-Tech product has a history of positive total returns for over 10 years.  Specifically, the fund’s returns are 24% and 21.7% over the past three and five-year period, respectively. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.

FKDNX has an annual expense ratio of 0.86%, which is below the category average of 1.04%.

Janus Henderson Global Technology and Innovation Fund Class A (JATAX Free Report) aims for long-term growth of capital. The fund invests majority of its net assets in securities of companies benefiting from advances or improvements in technology.

This Sector-Tech product has a history of positive total returns for over 10 years.  Specifically, the fund’s returns are 24.5% and 25.1% over the past three and five-year period, respectively. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.

JATAX has an annual expense ratio of 1.01% versus the category average of 1.25%.

Fidelity Select Environment and Alternative Energy Portfolio (FSLEX Free Report) fund aims for capital growth. The fund invests majority of assets in securities of companies mostly engaged in activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies or other environmental support services. The non-diversified fund invests in U.S. and non-U.S. issuers alike.

This Zacks Sector – Other has a history of positive total returns for more than 10 years. Specifically, FSLEX has a three and five-year returns of 3.4% and 9.5%, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSLEX has an annual expense ratio of 0.85%, compared with the category average of 1.04%.

New Alternatives Fund Class A (NALFX Free Report) seeks long-term capital growth with income as its secondary objective. It primarily invests in common stocks of companies and even in other equity securities such as real estate investment trusts and American Depository Receipts. Most importantly, the fund invests in companies that contribute to a sustainable environment, and its top ESG stock holdings are Brookfield Renewable Energy, Terraform Power and Nextera Energy.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, NALFX has a three and five-year returns of 17.9% and 17%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

NALFX has an annual expense ratio of 1.08% compared to the category average of 1.28%.

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