True Alpha: AI-Powered ESG Public Equities Trading
Earlier in 2021, we unveiled our Digital Health & Wellness Fund, focusing on technology-enabled health and wellness ventures in three verticals: Women’s Health, Behavioural Health, and Aging Populations. Today, we’re excited to bring to market our latest product: True Alpha, our ESG Public Equities portfolio product, powered by our proprietary trading algorithm.
Bringing the first purpose-built algorithm for impact-focused public equities to market
At True North, we believe the future of investing is sustainable and radically transparent– something that isn’t mainstream in the market today. Companies that aim to do good for our planet and society behave differently in the market than their conventional counterparts. We aim to harness the potential of artificial intelligence to identify and react to these behaviours, to deliver market-competitive returns and quantifiable impact. To do this, we source a trading universe of mid- and small-cap public equities according to our six thematic impact areas (energy saving technology, transportation, renewable energy, clean water, circular economy, plant-based food). After selection, our trading strategy leverages a family of algorithms in order to execute.
Our public equities algorithm was inspired by our investment thesis, which is built around 2 core principles:
Investor sentiment is not always correlated with market performance e.g. GameStop, Tesla, etc.
Sustainable stocks have some performance characteristics that are distinct and recognizable from other listed equities
On a technical level, the True Alpha algorithm is actually made up of four separate algorithms, working in concert:
A technical trading algorithm
An investor sentiment algorithm
An ensemble of Translator algorithms which relate investor sentiment to market performance
A Voter algorithm that decides on the most accurate translator
How does it work in action? The foundation of True Alpha is a technical trading algorithm. We then inject investor sentiment data, enriching the technical trading algorithm. Because markets are dynamic in nature, we recognize that simply having one translator algorithm to evaluate all conditions and situations is insufficient. There’s power in consensus—our product leverages a family of translator algorithms, each differing slightly in their calibration, interpreting investment sentiment in real time. The fourth and final algorithm we call the “Voter” then reads market conditions, and decides which of the Translators was most accurate in relating investor sentiment to market conditions, at a given point in time.
Initial results are promising
The True North algorithm uses Interactive Brokers, a leading online trading platform. Through our managed account structure, clients maintain control over their capital while allowing True North to manage and execute trades on their behalf. With a minimum eligible portfolio value of $2 million, clients will have direct visibility to their portfolio, including up-to-date performance, quarterly reporting, and accumulated impact.
While we’re still beta testing our product, we have seen great performance: with our technical algorithm component fully functional, the True Alpha test portfolio was up 22% in Q1– 16% higher than the S&P 500.
For more information about our investment thesis and the launch of True Alpha, please contact partner Kai Chen (kai@truenorthimpact.com).