Key Takeaways
- Focusing on high-quality funds that tick sustainable boxes can increase the chances of outsize returns.
- Three funds from the Morningstar Best of Breed list have been selected for their strong sustainabile credentials.
- Investors can use the Morningstar ESG Risk Rating and Low Carbon Designation to screen suitable funds.
When it comes to selecting sustainable funds, the fundamentals of good investing can often be overlooked. Sustainable investors might typically start by filtering for funds managed according to a particular sustainable mandate, and then they will assess the fund’s fundamental quality, including its team and process. However, investors who worry that a sustainable approach could hamper returns—or who simply want to widen their investment opportunities—may want to explore conventional strategies that also tick sustainable boxes.
This approach ensures that the fund’s fundamental quality once again becomes the guiding principle, emphasizing its potential to generate excess returns.
Funds covered with a Morningstar Medalist Rating of Bronze, Silver, or Gold indicate analysts’ confidence in their ability to outperform their benchmark over a full market cycle.
Investors can then assess whether these funds align with their sustainability preferences, using tools such as the Morningstar Sustainability Rating and Low Carbon Designation.
Top-Rated Sustainable Funds
The three funds, selected from Morningstar’s Best of Breed 2025 list, include a European equity, a US equity, and a global equity strategy—all of which have a Morningstar Sustainability Rating of 4 or more globes.
Fidelity European Dynamic Growth
Morningstar Medalist Rating: Gold
Fabio Riccelli has led this strategy for over 15 years, supported by more than 30 analysts focused on European companies. His experience, access to in-house research, and long-term approach help manage workload and mitigate key-person risk. Although comanager Karoline Rosenberg and assistant manager Mac Elatab recently left the team, Riccelli has a broader research team on hand, and a new comanager is expected to be appointed.
Fidelity’s strong research platform underpins the fund’s unconstrained, high-conviction, growth-oriented approach. The process emphasizes economic moats, growth durability, and valuation through a disciplined bottom-up stock selection framework. The team targets 10%-15% total shareholder returns over the medium to long term, primarily from mid- and large-cap holdings.
The roughly 50-stock, benchmark-agnostic portfolio has a notable mid-cap bias (around 30%) and focuses on companies less influenced by macro factors. Consumer, healthcare, industrial, and technology sectors dominate, while real estate, telecoms, and energy are typically avoided. The portfolio typically holds companies that have a Sustainalytics ESG Risk Classification of Low or Negligible, earning the fund a Morningstar Sustainability Rating of 5 globes. One exception is a position in Babcock International, that has High ESG Risk Classification which is driven by product governance, business ethics and human capital issues. The fund also holds a Low Carbon Designation, meaning the portfolio has a Low Carbon Risk Score and has less than 7% of fossil fuel exposure.
Dodge & Cox Worldwide US Stock
Morningstar Medalist Rating: Gold
Six seasoned investors lead the US equity investment committee for this fund, supported by a strong, research team. The committee structure promotes consistent execution and mitigates key-person risk, with smooth transitions even amid rare departures such as Karol Marcin’s 2024 exit. Extensive analyst backing and over USD 1 million invested per manager in the US fund highlight strong alignment and commitment.
Collaborative, in-depth fundamental research—guided by a contrarian and patient mindset—drives idea generation and portfolio construction. The team targets companies with competitive advantages, solid growth prospects, and capable management, often taking positions against consensus. Valuation discipline, sector committees, and portfolio-level reviews help refine ideas, while improved risk tools, openness to debate, and selective derivative use enhance portfolio resilience.
The research-driven portfolio holds 60-90 stocks with moderate turnover, allowing sector weights to evolve gradually. It can diverge meaningfully from its S&P 500 benchmark. Financials exposure is at its lowest since 2011, while healthcare has reached a post-2009 high, including new names like Humana. The strategy’s mid-cap allocation has also grown. The portfolio holds several companies with a High ESG Risk Rating like energy names Occidental Petroleum and ConocoPhillips, and utility Dominion Energy. Such holdings prevent the fund from achieving a Low Carbon Designation. However, it maintains a reasonably solid sustainability profile, as evidenced by the 4 globes it has received.
GuardCap Global Equity
Morningstar Medalist Rating: Silver
The close-knit team comprises lead managers Michael Boyd and Giles Warren, alongside portfolio managers Bojana Bidovec and Orlaith O’Connor. This experienced, stable group combines deep industry expertise with meaningful co-investment and stands out for its intense collaboration, long-term perspective, and disciplined research culture. Following rigorous bottom-up research, the team invests in a select group of stocks that meet strict quality and valuation criteria.
The strategy’s strength lies in its uncompromising, high-conviction process—long-term, quality-growth oriented, valuation-aware, and deeply research-driven. Ideas originate from systematic screening and thematic discussions, followed by a structured, multistage research process in which all managers debate findings and vote at each stage. Only the most compelling ideas enter the high-conviction pool, with final selection by the lead managers.
The concentrated 20-25 stock portfolio reflects a clear bias toward durable, high-quality growth. Around 90% of holdings have a wide economic moat, all with solid financials. Sector positioning favors consumer, technology, and healthcare names while avoiding cyclicals such as energy and banks. This also steers the portfolio toward companies with solid ESG credentials, and indeed almost all portfolio holdings have a Low ESG Risk Classification except for Colgate-Palmolive (Medium) and Waters (Negligible). This earns the fund 5 globes and a Low Carbon Designation.
This article was taken from the Morningstar Best of Breed report.
