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.

BREAKING DOWN '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%.

  1. Economic Exposure

    A type of foreign exchange exposure caused by the effect of unexpected ...
  2. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  3. Financial Exposure

    The amount that one stands to lose in an investment. For example, ...
  4. Company Risk

    The financial uncertainty faced by an investor who holds securities ...
  5. Dynamic Gap

    Refers to asset and liability risk management at financial institutions. ...
  6. Asset Allocation

    An investment strategy that aims to balance risk and reward by ...
Related Articles
  1. Stock Analysis

    Looking to Invest in China's Fast Food Industry? Try KFC

    Read about the fast food industry in China, and learn what makes KFC the dominant brand in a market poised for years of high growth.
  2. Investing Basics

    Introduction To The Portfolio Dedicated Strategy

    Dedicated Investment Portfolio strategies have been used by institutional investors like pension funds and insurance companies for many years and have gained some popularity with individual investors ...
  3. Personal Finance

    Rebalance Your Portfolio To Stay On Track

    Like a tune-up for a car, this re-alignment should minimize trouble down the road.
  4. Investing Basics

    Broadening Your Portfolio's Borders

    Find out what type of international fund might suit your needs in gaining exposure to foreign markets.
  5. Investing Basics

    Calculating Beta: Portfolio Math For The Average Investor

    Beta is a useful tool for calculating risk, but the formulas provided online aren't specific to you. Learn how to make your own.
  6. Investing Basics

    Diversification: Protecting Portfolios From Mass Destruction

    This investing strategy retains its charm as a protection against random events in the market.
  7. Options & Futures

    6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.
  8. Investing Basics

    5 Things To Know About Asset Allocation

    Overwhelmed by investment options? Learn how to create an asset allocation strategy that works for you.
  9. Forex Education

    Managing Currency Exposure In Your Portfolio

    The value of your investments is impacted by changes in global currency exchange rates. Find out how.
  10. Fundamental Analysis

    The Role Of Rebalancing

    A disciplined rebalancing practice can add a lot of value to a long-term strategic asset allocation program.
  1. Does mutual fund manager tenure matter?

    Mutual fund investors have numerous items to consider when selecting a fund, including investment style, sector focus, operating ... Read Full Answer >>
  2. Why do financial advisors dislike target-date funds?

    Financial advisors dislike target-date funds because these funds tend to charge high fees and have limited histories. It ... Read Full Answer >>
  3. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  4. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  5. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  6. What fees do financial advisors charge?

    Financial advisors who operate as fee-only planners charge a percentage, usually 1 to 2%, of a client's net assets. For a ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center