The Kai-ESG (Kai Environmental, Social and Governance) portfolio: optimized and responsible investing

Apr 22, 2019 | Portfolio Models and Optimization

Kavout has developed several model portfolios based on vetted and established trading strategies and augmented with AI (artificial intelligence) algorithms. In this article, we present an example of our Kai Environmental, Social and Governance (Kai-ESG) Portfolio.

The Kai-ESG portfolio optimizes investment in companies with social responsibility and sustainable practices that potentially enhance their long-term financial strengths.

Stocks are selected based on K Scores – stocks rating that is rooted in fundamental factor investing, and super-charged using machine learning (ML) models and data graph.

The Kavout AI engine applies quantamental analytics and ML models to periodically select ESG stocks with the highest growth potential, rather than passively tracking an index. Companies are actively monitored and analyzed. Portfolio holdings are dynamically adjusted to seek maximum sustainable risk-adjusted returns.

In the following example, stocks with K scores between 7 to 9 were chosen. Equal weights were applied to the strategy. After testing several different rebalancing frequencies, we arrived at a monthly rotation cadence which produced the optimal output.

Here are the top holdings (in %) among an average of 50 stocks selected in a given month.

As the graph below illustrates, the Kai-ESG portfolio has consistently outperformed both the SUSA and ESGD since 2016.


Cumulative Return from 2016-10 to 2019-04

To learn more about Kavout’s other portfolio offerings, please visit our model portfolio page.

Contact us to learn more about how you can incorporate our AI and Machine Learning technology into your business.

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