Portfolio exposure
Definition
Portfolio exposure is what market factors you are actually exposed to: currencies, sectors, countries. For futures, it is measured by the notional value.
Portfolio exposure describes what you are actually exposed to: which currencies, sectors, countries or individual markets. Two portfolios with the same value can have completely different exposures, and exposure is what decides how a portfolio reacts to a sell-off in an industry or a stronger home currency.
Types of exposure
- Currency: what share of the portfolio is priced in dollars, euros or zloty. It determines how strongly exchange rates affect the result.
- Sector: the share of technology, financials, energy and other industries.
- Geographic: the share of companies from each country and region.
ETFs change the picture. An S&P 500 ETF quoted in euros gives exposure to US companies, and its sectors are the sectors of the companies in the index. A sound exposure analysis therefore breaks ETFs down into their holdings.
Exposure in futures
A futures contract does not work like buying shares. You only post margin, but you control a much larger market value, the notional exposure:
Example: a long position in 2 contracts at 2,500 points with a multiplier of 20 is a 100,000 PLN exposure. With a 10% margin rate only 10,000 PLN is blocked, yet a 10-point rise brings a 400 PLN gain and a drop of the same size a 400 PLN loss. That is why the notional exposure, not the margin, shows the position’s real risk.
Exposure in FundStat
The portfolio composition card breaks the portfolio down by currency, sector, country and region, and counts ETF sectors and regions by what the funds hold. For futures, FundStat shows the notional exposure and estimated margin.
Related terms
All terms- Portfolio allocationPortfolio allocation is how your money is split between asset classes such as stocks, bonds and cash, and within them between regions, sectors and currencies.
- Exchange-rate impact on investment returnsWith foreign assets, your home-currency return combines the asset’s price change with the exchange-rate change. A stock can rise in dollars and still lose you money.
- Portfolio diversificationPortfolio diversification is spreading investments across many assets, sectors and regions, so a weak result in one of them does not decide the outcome of the whole.
- P&LP&L (profit and loss) is the result of your investments: the gain or loss in money. It splits into realized (after selling) and unrealized (on open positions).