Utility – Kai Enhanced Sector Portfolio

Jul 19, 2019 | Factor Investment, Machine Learning, Portfolio Models and Optimization

Not unlike the Consumer Staples sector, Utilities is currently seen a safe option for investors concerned with market uncertainty due to the US-China trade dispute and rising tensions in the middle east. Earnings of Utilities in the United States is being positively impacted by new rates in service territories, customer growth, and effective management and control of expenses. Important players are focused on producing more electricity from renewable sources, and battery storage projects to meet customer needs during adverse situations. Because of these initiatives, the US Energy Information Administration forecasts US energy-related carbon monoxide emissions to decline 2.2% year-over-year in 2019, following a 2.7% rise in 20181.

The Kai-ESP is a portfolio that gives full sector exposure and concentrates on the stocks with the highest potential. We built our portfolio for the Utilities sector based on established trading strategies but augmented with Machine Learning algorithms.

Stocks are selected based on K Scores – stock ratings that are rooted in fundamental rule-based factor investing, and enhanced using machine learning. Stocks ratings take into consideration new information and are updated daily. To seek maximum risk-adjusted returns the portfolio strategy is rebalanced and asset allocation is optimized for both holdings and weights.

This quantamental approach works across sectors and allows us to capture the best growth cycle of any particular sector.

For this scenario we built our portfolio using K Scores of 9, and rebalanced every month. We used the XLU ETF as the benchmark for our analysis, which has seen a slow but steady rise in 2019 – the XLU ETF hit a new 52-week high of $61.40 on June 20, 20192.

The average holding in our portfolio over this period was 12 companies. Below are some of the top holdings and their proportions:

Duke Energy Corporation6.94
Korea Electric Power Corporation Sponsored ADR3.22
NextEra Energy, Inc.4.67
American Electric Power Company, Inc.4.44
Exelon Corporation4.20
Dominion Energy Inc4.11

By looking at the graph below, we see that the Kai-ESP over time has outperformed the XLU ETF.

If you want to see the full-fact sheet with our latest data and performance charts, please click the button below to download.

Interested in other sectors? We recently released the portfolios for Health Care, Technology and Consumer Staples as well, and plan to release more using our unique Portfolio Design engine – watch this space as we release them. To learn more about Kavout’s other portfolio offerings, please visit our model portfolio pageContact us to learn more about how you can incorporate our AI and Machine Learning technology into your business.

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