Baskets are a common, but often underexamined feature of modern portfolios. They offer a way to implement complex views with simplicity, letting managers express themes, manage risk, and execute efficiently.
Let’s break down how baskets function, why they’re useful, and how decomposition can bring hidden structure to light.
A basket is a group of securities traded together as one. While often associated with ETFs or sector plays, baskets are used far more flexibly by institutional managers to:
- Express investment themes
- Hedge concentrated exposures
- Scale positions efficiently
They serve as a practical wrapper for more complex views, grouping multiple securities into a single, manageable unit that can be traded and adjusted as one.
1. Expressing Themes Without Managing Every Name
Want exposure to AI hardware without owning 25 semiconductors individually? A basket does that by capturing the theme while managing idiosyncratic risk.
2. Execution and Liquidity Efficiency
Trading one instrument is faster and less visible than adjusting 30 positions. Baskets enable size and speed, while minimizing market impact.
3. Hedging and Risk Offsets
Baskets can act as targeted hedges against beta, sectors, or factors without forcing full portfolio re-engineering.
4. Rebalancing and Tax Optimization
Managers can use baskets to scale exposure during inflows/outflows or deploy them for loss harvesting strategies.
We generally see baskets fall into one of two structures:
- Diversified / Thematic Baskets
Equal- or cap-weighted collections of names built to represent a sector or style. These are broad, balanced, and designed to reduce noise.
- Single-Name Concentrated Baskets
Dominated by a core name (often 60–80%), with smaller offsets around it. These serve to deliver conviction, while diluting specific risk slightly.
Here’s where things get interesting.
Baskets can obscure what’s really in the portfolio, especially when nested inside larger holdings. To support clearer attribution and exposure analysis, we decompose baskets in one of three ways:
- Full Lookthrough
The gold standard. Every underlying security is unpacked with its true weight reflected.
- Blended Decomposition
Best for concentrated baskets. We treat the dominant name separately, and group the rest into a “residual diversified exposure.”
- Single-Name Proxy
Sometimes, for simplicity, a basket is modeled as a single proxy ticker, especially when its behavior mimics a lead constituent.
These methods allow us to fit basket analysis to the investment intent behind the position, not just the label it carries.
Once baskets are decomposed, they stop being black boxes and start behaving like normal parts of the portfolio. This unlocks:
- True Portfolio Lookthrough
See real sector, regional, or factor exposures, not just basket tickers.
- Accurate Attribution
Group decomposed baskets alongside direct holdings to understand how strategies performed in context.
- Volatility and Distribution Tracking
View basket-level return dispersion over time, even as constituents shift dynamically.
As baskets proliferate both as active strategies and operational tools, understanding their structure and decomposition becomes more important.
Kiski’s flexible infrastructure is built to ingest, track, and unpack baskets, whether they arrive fully disclosed or must be inferred from price behavior. This supports more accurate risk analysis and cleaner attribution.
If baskets are part of your portfolio construction process, it’s worth taking a closer look at what’s inside - and what they’re actually doing. Behind a single position might lie exposures you didn’t intend, or diversification you didn’t realize you had.
