Market Exposure

The absolute amount of funds or the percentage of a portfolio that is invested in a given security

What is Market Exposure?

Market exposure refers to the absolute amount of funds or the percentage of a portfolio that is invested in a given security, or a bundle of securities that are part of the same industry or market sector. It is usually expressed in the form of a percentage of the total securities held by a portfolio. It is a representation of the amount of money that an investor may lose due to risks associated with a given investment.


Market Exposure


The higher the market exposure, the higher the risk associated with the specific security, industry, sector, or investment area. Exposure to risk determines how the assets are divided in a particular investment portfolio. Separating investment classes in such a manner enables investors to mitigate the risk.



  • Market exposure refers to the absolute amount of funds or the percentage of a portfolio that is invested in a given security, or a bundle of securities that are part of the same industry or market sector.
  • It is expressed in terms of a percentage of the total portfolio holdings of an investor.
  • Market exposure is different from financial exposure and mark currency exposure.


Other Types of Risk Exposures in Markets

Market exposure is different from financial exposure, which evaluates the amount of money that may be lost due to risks associated with a particular security. In the foreign exchange market, mark currency refers to the exposure to fluctuations in currency.

For example, currencies such as the dollar and euro, fluctuate a lot. Thus, if an investor based out of Greece makes an investment in the US stock market and the dollar weakens as opposed to the euro, they may lose money.


Market Exposure according to Investment Type

A portfolio is a mix of several securities. Consider a situation where a portfolio consists of 60% bonds, 25% stocks, and 15% derivatives, such as options. Thus, the market exposure to the stock market is 40%, given that both shares and derivatives are subject to stock market risks. However, since the risk exposure to government bonds is 60%, this particular investor stands to lose more from bonds than in stocks.


Market Exposure according to Region

When an investor examines their holding according to region, it includes the separation of domestic investments from those made in foreign markets. They can further divide their investments into foreign markets according to region.

For example, a portfolio may include 30% domestic and 70% foreign investments, 50% of which can be made in Asian markets, and the other half in European markets. Thus, the overall exposure to the eurozone will be 35% of the portfolio.


Market Exposure according to Industry

During a given set of market conditions, different industries may perform and react differently. Consider a situation where 60% of the investments are made up of stocks of companies that produce consumer durables while the rest are from the luxury goods industry. The fast-moving consumer goods (FMCG) industry exerts more influence on the returns of the portfolio than the luxury goods industry.


Risk Management

It is important to consider the overall risk exposure of a given portfolio while determining asset allocation. It is because a focus on risk exposure can greatly increase returns or minimize losses.

Market exposure must be classified in accordance with the long-term investment objectives of the portfolio holder. For example, a risk-averse person may want to minimize risk and will create a diverse portfolio with both bond holding and corporate shares. It will be less risky than a portfolio that consists entirely of stock market securities. However, the latter may provide a higher return to the investor.

Industry experts usually recommend that portfolios must include a broad range of assets in order to avoid being overexposed to one sector or class of assets. For example, holding stock in a company in the hospitality industry doesn’t just expose the investor to fluctuations in the stock market. They are also exposed to the prevailing conditions in the industry,

Thus, if the investor wanted to avoid high market exposure to the oil industry because of a war in the Middle East, they will sell the holdings.


Additional Resources

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Asset Allocation
  • Portfolio Turnover Ratio
  • Diversification
  • Investment Portfolio

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