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The Case for Baskets

Posted May 07, 2026

Sean Ring

By Sean Ring

The Case for Baskets

This week, I’m in Riyadh teaching some talented graduates about the markets. Today, we went through ETFs, and it reminded me that I haven’t written about them in ages.

Of course, when you’ve got ace stock pickers like Ray Blanco, Enrique Abeyta, and Chris Cimorelli, to name a few, in the Paradigm stable, you may be perfectly happy in single stocks.

But many aren’t. Instead of looking at single stocks, they’d rather look at baskets of stocks. Those baskets may represent the entire S&P 500, the Nasdaq-100, market sectors, or anything else the industry can group.

And that’s a perfectly fine thing to do. With that in mind, I thought I’d put together a little piece on investing via ETFs, with particular attention to sector investing.

When you don't have a Bloomberg terminal, a research team, and 14 hours a day to stare at charts, buying ETFs is simpler. That doesn’t mean you don’t do your homework, but it makes the buying decision easier.

Once you understand how they work, you may employ this kind of investing for your overall portfolio.

What’s an ETF?

ETF stands for exchange-traded fund. But forget the jargon. Here's the plain version:

An ETF is a basket. It holds a collection of stocks, sometimes dozens, sometimes hundreds, and you can buy the whole basket with a single trade, through any brokerage account, just like buying a share of Apple or Ford.

Most ETFs don't try to beat the market. They just track it. The fund buys every stock in a given index, such as the S&P 500, in proportion to its weight in the index. When the index rises, the ETF rises; when it falls, same deal. No stock-picking. No fund manager is taking a slice of your returns for the privilege of being wrong.

The costs reflect that. Relentless competition has driven broad-market ETF fees down to just a few basis points (1 bp = 1/100th of 1%). That's pennies on the dollar for every hundred you invest. Over a decade, the difference between a cheap ETF and a high-fee, actively managed mutual fund can be enormous… and that compounds in your favor.

And because ETFs trade on an exchange, you can buy or sell them any time during the market day. No waiting for end-of-day prices. No redemption delays. You see the price, and you make the trade.

How Wall Street Carved Up the S&P 500

Now here's where it gets genuinely useful.

The S&P 500 isn't just 500 random companies thrown together. It's organized into 11 sectors, including technology, energy, health care, and financials. Every company in the index belongs to exactly one sector.

State Street Global Advisors took that structure and built a separate ETF for each sector. They're called the Select Sector SPDRs. Together, they carve the S&P 500 into 11 clean pieces.

Here's the full lineup:

TickerSectorWhat It Holds
XLBMaterialsChemicals, metals, mining
XLCCommunication ServicesPlatforms, media, telecom
XLEEnergyOil & gas production, services
XLFFinancialsBanks, insurers, asset managers
XLIIndustrialsCapital goods, aerospace & defense
XLKTechnologySoftware, semiconductors, hardware
XLPConsumer StaplesFood, beverages, household staples
XLREReal EstateListed REITs, real estate companies
XLUUtilitiesElectric, gas, and water utilities
XLVHealth CarePharma, biotech, medical devices
XLYConsumer DiscretionaryAutos, e-commerce, retail, leisure

Each one holds only the S&P 500 names from that sector. XLK holds the tech giants (but not Amazon… that’s in XLY). XLE holds the oil majors. XLV holds the pharmaceutical companies. 

Simple. Transparent. Cheap.

And here's the key point: together, these 11 ETFs add up to exactly the S&P 500. Buy all of them proportionally, and you've reconstructed the index. But you don't have to. (You could just buy the SPY for that.) Instead, you just buy the sectors you like.

Why This Matters for You

Think about what sector ETFs actually give you.

Say you believe the energy sector is set up well. Oil prices are firm, supply is constrained, and the geopolitical picture is supportive. But you don't want to bet on a single company. What if the CEO makes a bad call? What if there's an accident? One bad headline can gut a stock.

With XLE, you don't have to pick one winner. You own the whole sector. You get the exposure you want — energy up, your ETF goes up — without the single-name risk of having most of your chips on one company.

Or maybe you want defense against a downturn. Consumer staples like toothpaste, soup, and laundry detergent tend to hold up when the economy weakens, because people don't stop buying them. That's XLP. One trade. Done.

Mixing and matching these sectors is another powerful strategy. You might target technology for its growth potential, layer in utilities for diversification, and hold some healthcare for its defensive properties. Instead of collecting a disorganized pile of tickers, you’re constructing a portfolio anchored in coherent macro logic.

The 3 Things ETFs Actually Solve

1. Diversification without (much) homework.

A sector ETF may hold 30, 40, or 60 companies. You own all of them in 1 trade. Single-stock blowups hurt much less when your position is spread across the whole group.

2. Cost, radically reduced.

Most sector SPDR funds charge expense ratios ranging from 0.09% to 0.13% per year. For every $10,000 invested, that's roughly $9 to $13 annually. Compare that with an actively managed fund that charges 1% or more and often still underperforms the index it's trying to beat.

3. Clarity about what you own.

Every sector ETF has a published list of holdings. You can see exactly what's in it. There's no black box. No need to wonder what the fund manager bought last quarter. The transparency is built in.

Wrap Up

Most new investors spend months trying to find the right stock. Which tech company will lead the next cycle? Which bank is best positioned? It feels like the right question. But maybe it isn’t.

Sometimes, the smarter question is: which sectors do I want exposure to? Then you let the ETF do the rest.

The S&P 500 has already been carved up into 11 clean pieces. You don't have to pick which chip company wins. You can just own the chip sector. Same for energy. Same for health care. Same for every other corner of the market.

Wall Street built these tools for institutions. Now they're sitting in your brokerage account, available for the price of a single trade, at a cost that rounds to almost nothing.

Take advantage of it.

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