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Karl O.Strøm
14/11/2022 | 3 min read

When buying exposure to a combined set of securities it is important to know the content of this selection

When I was a child we used to get something called the "Star bag" as a Saturday treat from our parents. This was a bag of mixed candy, as well as some picture cards that were popular to trade with. You never quite knew what was in the bag, but it was usually good. And it was always exciting to unpack.

On the stock exchanges, in addition to individual companies and derivatives, there are also listed many securities that have a portfolio as an underlying. These are a kind of stock market "star bags". Among the best known of these are the ETF’s – Exchange Traded Funds. The first ones were launched in the USA in the 1990s and gave investors an easy way to take exposure in the well-known market indices. ETFs that track the S&P 500, NASDAQ 100, DAX, EURO STOXX 50, and the like are still among the most traded products on the stock exchanges. You will also find a wide selection of trading products that provide exposure to these indices in Vontobel's product range.

What is the underlying exposure?

When an ETF, future or other trading product has a market index as an underlying, this means that it will move in line with the portfolio/collection of shares included in the index. For a trader or investor, it can therefore be interesting to take a look at what such indices contain. A quick search on the internet will usually give you the answer. If we look at the NASDAQ 100 at the time of writing, Apple has a weight of 13.3%, Microsoft 10.1% and Google 6.4%. The three largest shares thus account for more than 30%. If you include Amazon, Tesla, and NVIDIA, you get a further 12%. Good to know.

In my opinion, ETFs and trading products that follow the well-known market indices are easy understand, and nice to trade. The same applies to those that provide exposure to individual raw materials. But if you look at ETFs that follow narrower sectors, or less clearly defined "themes" it can be a good idea to take a closer look at the actual exposure.

Let me take an example. While working on an article I recently wrote about the electric megatrend, I looked at some ETFs that allegedly should provide exposure to the topic of electric and self-driving cars. On a closer look at the contents of one of them, I found that among the 10 largest stocks in it were Apple, Tesla, NVIDIA, Microsoft, Google, Qualcomm and Intel. The selection and weighting was a bit unexpected. Tesla as the market leader in the sector is obvious to include. Apple and Microsoft were somewhat more surprising. Google does have a division that develops self-driving cars, but it is a very small part of the group. Apple has no cars. NVIDIA, Qualcomm and Intel manufacture microprocessors. There are many microchips in electric cars, but still?

In such cases, it is always an option to go directly to the stocks that offer a cleaner exposure to what you are looking for. Tesla for electric cars and NVIDIA for microchips, etc. And then perhaps take a smaller position size if you want to reduce company-specific risk.

Disclaimer: After many years in the brokerage industry I started my own business in 2021. I published the book "Paleo Trading: How to trade like a Hunter-Gatherer” and launched a hedge fund that trades according to the principles described in the book. I emphasize that nothing written on this blog is to be regarded as personal advice or a concrete call to take positions. Everyone must be responsible for their own decisions and familiarize themselves with the products they use.


This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.

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Please read this information before continuing, as products and services contained on this website are not accessible to certain persons. Of importance are the respective prospectuses which are attainable from the issuer: Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, DE-60323 Frankfurt am Main, Germany, as well as from this website.