Pakistan ETF Portfolio Exposure Simulator

Demystifying Underlying Portfolio Exposure in Pakistan

New to ETFs? Read our ETF Fundamentals Guide first, then come back to analyze your portfolio here.

Many retail investors on the Pakistan Stock Exchange (PSX) fall victim to the "Diversification Illusion." By purchasing three or four different ETFs, they assume they have built a well-hedged portfolio. However, because the KSE-100 index is fundamentally top-heavy, and because multiple index-tracking funds target the same high-liquidity stocks, these investors often end up holding duplicate exposures.

For example, if you hold equal allocations in a conventional index ETF (like the UBL Pakistan Enterprise ETF) and a consumer-focused ETF (like the Alfalah Consumer Index ETF - ACIETF), you might expect your portfolio to be balanced. In reality, both funds carry overlapping exposures to heavyweights such as Lucky Cement (LUCK) or Engro Corporation (ENGRO). This simulator exposes those hidden duplications, calculating exactly how many rupees of every 100 PKR you invest go into a specific stock or sector.

Understanding the Math: Herfindahl-Hirschman Index (HHI)

To objectively quantify the risk of concentration, institutional managers use the Herfindahl-Hirschman Index (HHI). Originally designed to measure monopoly power in industries, it is calculated in portfolio management by squaring the percentage weight of each individual stock and summing the totals:

$$HHI = \sum_{i=1}^{n} w_i^2$$

Where $w_i$ is the percentage weight of stock $i$ in the portfolio. The index ranges from close to 0 (perfectly diversified across thousands of tiny holdings) to 10,000 (a single-stock portfolio). We interpret HHI concentration scores using three standard tiers:

• Low Concentration (HHI < 1,500): Well-diversified. Portfolio returns are not overly dependent on the movement of a single corporate entity.
• Moderate Concentration (1,500 - 2,500): Noticeable risk concentration. A few large-cap companies (e.g. HUBC, MCB, or SYS) exert a strong influence on your daily portfolio performance.
• High Concentration (HHI > 2,500): Extremely concentrated risk. A sudden regulatory shift, tax adjustment, or earnings miss in a single dominant company could lead to significant drawdown.

Implementing the Core-Satellite Strategy on the PSX

One of the most effective ways to build an ETF portfolio is the Core-Satellite strategy. Under this framework:

Using this simulator, you can fine-tune these proportions. If adding a momentum satellite pushes your exposure to technology or cement stocks beyond your target limits, you can easily use the sliders to scale back or rebalance your holdings.

Shariah-Compliant vs. Conventional Exposure Tilts

Islamic finance plays a major role on the PSX, with funds like the Meezan Islamic ETF (MIIETF) and the Muzn Islamic Income ETF (MZNPETF) dominating trading volumes. Shariah-compliant screening rules exclude companies that deal in interest-bearing debt, banking, insurance, and non-halal business operations.

Because Islamic filters completely remove the commercial banking sector (which accounts for a large portion of the KSE-100 capitalization), Shariah ETFs naturally tilt heavily toward Oil & Gas Exploration (e.g. OGDC, PPL), Fertilizers (e.g. FFC, ENGRO), and Technology (e.g. SYS). If you combine conventional and Islamic ETFs in your portfolio, this simulator will show you the exact Shariah compliance ratio and sector tilts of your aggregate holdings.