Market Exposure

Definition of 'Market Exposure'


The dollar amount of funds or percentage of a portfolio invested in a particular type of security, market sector or industry, which is usually expressed as a percentage of total portfolio holdings. Market exposure, also known as “exposure,” represents the amount an investor can lose from the risks unique to a particular investment.

Investopedia explains 'Market Exposure'


The greater the market exposure, the greater the market risk. For example, in a portfolio consisting of 20% bonds and 80% stocks, the investor’s market exposure to stocks is 80%. This investor stands to lose or gain more depending on how stocks perform than from how bonds perform.

Within this investor’s 80% market exposure to stocks, there might be a 30% market exposure to the health-care sector, 25% exposure to the technology sector, 20% to the financial services sector, 15% to the defense sector and 10% to the energy sector. The portfolio’s returns will be more influenced by health-care stocks than by energy stocks because of the greater market exposure to the former.

The exposure of a portfolio to particular securities/markets/sectors must be considered when determining a portfolio’s asset allocation since it can greatly increase returns and/or minimize losses. For example, a portfolio with both stock and bond holdings—that is, market exposure to both types of assets—will typically have less risk than a portfolio with exposure only to stocks. In other words, diversification reduces market-exposure risks.

If our investor wanted to reduce high market exposure to health care because of major changes in the industry brought by new federal legislation, selling 50% of those holdings would reduce exposure to 15%. 



comments powered by Disqus
Hot Definitions
  1. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  2. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  3. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  4. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  5. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  6. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
Trading Center