Building Custom Investment Baskets

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Exchange-traded funds have proven to be extremely popular with investors. From broad-based baskets like SPY and IWM to more focused thematic investments like WCLD (cloud computing) or MJ (cannabis).

The two main disadvantages of publicly-traded ETFs are a lack of flexibility and costs. One can use only baskets that are offered by an ETF provider, and once venturing away from the very large broad-based ETF, annual management costs are often in the 50-100bp/yr range. The Finsera platform offers a very intuitive yet powerful toolset, the BasketBuilder, to build and analyze custom baskets with no need to pay any management fees.

These include:

  • An intuitive and flexible interface for defining a desired basket
  • A rich set of analytics to evaluate basket performance and risk
  • Detailed reports of basket composition over time

The platform supports the following tasks with no need for any coding:

  • Replicating publicly traded ETFs
  • Modifying publicly traded ETFs per user specifications
  • Defining and building custom baskets based on desired characteristics and exposures

As an example of the BasketBuilder capability, we will build a basket of cybersecurity companies. We will start with defining an investment universe composed of the union of several publicly traded cybersecurity ETFs

Universe definition

Understandably, this has been a growth area and indeed we see that the number of companies focusing on cybersecurity has roughly doubled over the past 5 years.

Universe definition

Understandably, this has been a growth area and indeed we see that the number of companies focusing on cybersecurity has roughly doubled over the past 5 years.

  • Weights - market cap, equal or custom
  • Objective function
  • Max number of assets (optional)
  • Min holding (optional)
  • Risk Model (optional)

Here we will use a simple cap-weighted basket:

Universe definition

Performance of this basket over the last 5 years is actually better than the publicly traded ETFs with significantly lower turnover (lower costs, taxes)

Universe definition

As you can see, with an intuitive web-based UI, one is able to quickly define a customized basket. In a later post, we will show how the BasketBuilder toolset can be used to construct much more elaborate baskets.