What is exposure to an investment channel, and how is it calculated?

Exposure to an investment channel includes investment in shares, both directly and by means of financial instruments (for example, futures, options, etc.). 

In a direct investment in a share, the value of the holding and the value of the exposure are identical. However, in an investment in a share channel by means of a financial instrument, the value of the holding will differ from the value of the exposure – it will depend on the extent of the financial instrument's leverage. The greater the leverage, the greater the difference between the value of the holding and the value of the exposure.

The value of the holding represents the monetary value of the financial instrument (should the investor decide to sell it in the market), and does not include the financial leverage for that instrument.
The rate of exposure represents the extent of the exposure created in that channel, reflecting the financial leverage in that instrument.

If you evaluate the investment solely in terms of the holding, you are likely to obtain an inaccurate picture of the magnitude of risk in the portfolio, because, as noted, the rate of the holding does not reflect the existing financial leverage in the financial instruments.

An example of the difference between the rate of holding and the rate of exposure

In a fund belonging to a manufacturer on the S&P 500 Index, the fund manager invests in shares through a financial instrument (options with leverage 12). As a result, the rate of the holding in shares will be 10% (the monetary value of the options), compared with an exposure of 120% (12 * 10%) for the same share index reflecting the financial leverage.

Double exposure

In contrast to the holding (which totals 100%), exposure can be lower or higher than 100%. When calculating exposure, in certain assets double counting will be performed, meaning that the same assets will be expressed in shares (or a corporate bond), and also in foreign currency. Therefore, when we evaluate the investment portfolio in terms of actual exposure, a result of over 100% is possible. For example, an overseas share will be expressed in both the "shares" and the "foreign currency" investment channels.