What is Country Basket
A country basket is a selection of countries that are grouped together in order to provide insight into the effect of changing economic conditions. A country basket may track the economies and markets of countries that have similar economic characteristics, such as being part of the G7, that have particular trade characteristics, such as being export-lead, or that rely on the production of certain goods, such as oil.
A country basket can also refer to a basket of securities that track the performance of the overall economy of a given nation. The selected securities would include companies of ranging market caps and sectors.
BREAKING DOWN Country Basket
Country baskets are used by investors in the creation of derivatives, such as those that track emerging markets. Rather than buy individual securities that track the indexes of each country, investors can purchase a security that tracks the performance of a country basket of indexes. The index may be weighted according to the size of each country's economy. A country basket provides a simple way to have the benefits of own multiple stocks of the other country without hassle of managing multiple securities. Country baskets are used by investors to hedge and balance their portfolios. Economists also use country baskets to determine how changes to the world economy, such as a recession, may affect developing nations.
A basket of stocks in foreign countries combined into one security as an exchange traded fund is an example of a country basket. The country basket generally is designed to mirror the other country exchange’s major index. The word "country" here refers to a nation other than home country.
Country baskets are designed by brokerage firms and similar types of firms to create passive exchange traded funds. They are also used for index arbitration, and program trading. A country basket allows investors to hold several stocks in his portfolio and not subject him to numerous transactional costs, and /or multiple securities.
Creating a Country Basket Exchange Traded Fund
The method of creating a country basket ETF starts when an institutional investor provides a basket of specified securities for deposit into the ETF's portfolio. This basket of securities generally includes most or all of the securities underlying a country's primary "standard" market index (like the Dow Jones Industrial Average in the United States). In exchange, the institutional investor receives the equivalent value of the ETF's shares in large lot sizes called "creation units." Thereafter, the institutional investor may hold the shares in creation units, or sell some or all of the individual shares into the secondary market, where they are bought, sold and priced throughout the day on a stock exchange.