Loading the player...

What is 'Overweight'

Overweight is a situation where an investment portfolio holds an excess amount of a particular security when compared to the security's weight in the underlying benchmark portfolio. Actively managed portfolios will make a security overweight when doing so allows the portfolio to achieve excess returns. Overweight can also refer to an investment analyst's opinion that the security will outperform its industry, its sector or the entire market.

BREAKING DOWN 'Overweight'

Securities will usually be overweight when a portfolio manager believes that the security will outperform other securities in the portfolio. An example of having a security being overweight in an investment portfolio would be when a portfolio normally holds a security at a weight of 15% but the security's weight is raised to 25% in an attempt to increase the return of the portfolio. Another reason for overweighting a security in a portfolio is to hedge or reduce the risk from another overweight position.

The alternative weighting recommendations are equal weight or underweight; equal weight implies that the security is expected to perform in line with the index, while underweight implies that the security is expected to lag the index in question. An analyst's rating of overweight would be supported, for example, by a retail stock's return being expected to be above the average return of the overall retail industry over the next eight to 12 months. Specific analyst definitions may vary, however, regarding the period used and the benchmark the security is compared against.

Overweight vs. Underweight

There are exchange-traded funds (ETFs) that track indexes such as the S&P 500, giving the stocks in the ETF proportional weights to the actual weights they have in the S&P 500 or other index. Other ETFs may maintain equal weights of each stock in the index in an attempt to overweight small-cap stocks and underweight large cap stocks; further, these funds try to sell overvalued stocks and buy undervalued stocks upon rebalancing to even out weights for each stock.

If stock A, for example, has a 1% weighting in the S&P 500, then it would have a 0.2% weighting in an equal-weighted fund to represent an equal weight for all stocks in the S&P 500. Stock A would effectively be underweight. If, however, stock B has a 0.1% weight in the S&P 500, then it would effectively become overweight in the equal-weighted portfolio with a weight of 0.2% to make its weight equal with the other 499 stocks in the portfolio.

RELATED TERMS
  1. Portfolio Weight

    The percentage composition of a particular holding in a portfolio. ...
  2. Equal Weight

    A type of weighting that gives the same weight, or importance, ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount ...
  4. Weighted

    A mathematical process by which figures and/or components are ...
  5. Weighted Average

    An average in which each quantity to be averaged is assigned ...
  6. Weighted Average Market Capitalization

    A stock market index weighted by the market capitalization of ...
Related Articles
  1. Investing

    What Does Overweight Mean?

    In the investing world, "overweight" refers to an expected stock performance, or a portfolio that is out of balance.
  2. Investing

    S&P 500 ETFs: Market Weight Vs. Equal Weight

    Both indexes include the same stocks, but their weightings give them very different properties.
  3. Managing Wealth

    Is Your Portfolio Overweight?

    As time passes, in order to remain profitable, investors need to put certain parts of their portfolio on a diet.
  4. Investing

    5 Growth Stocks That Mutual Funds Are Overestimating (FB, V)

    Learn why the most overweight stocks in most mutual funds might underperform when compared to the benchmark, with a summary and outlook for each company.
  5. Investing

    3 Types Of Indexing For ETF Success

    ETF success relies on the index with which it's paired. Discover three index genres for tracking average market performance.
  6. Financial Advisor

    The Workings Of Equity Portfolio Management

    Achieve analytical efficiency by applying your evaluation to a key set of stocks.
  7. Investing

    Rebalance Your Portfolio To Stay On Track

    Like a tune-up for a car, this re-alignment should minimize trouble down the road.
  8. Investing

    Introduction To Fundamentally Weighted Index Investing

    If you believe the market smiles on those who focus on value, growth or income, this vehicle may be for you.
  9. Investing

    Mutual Fund Tune-Up Delivers High-Powered Performance

    Rebalancing your portfolio will protect you from risk and ensure that your investments are performing at their best.
  10. Investing

    Spread Out Risk With Sector-Based ETFs

    These ETFs take the sector rotation strategy from institutional investors and puts it in your hands.
RELATED FAQS
  1. When might an analyst take an overweight position in a particular stock?

    Discover when an analyst might take an overweight position on a stock. Overweight rating indicates that the analyst has a ... Read Answer >>
  2. How does being overweight in a particular sector increase risk to a portfolio?

    Learn about the risks of having a portfolio that is overweight in a particular sector and how investors should regularly ... Read Answer >>
  3. Why do analysts sometimes give an overweight recommendation on a stock?

    Learn more about analysts' ratings and why financial analysts may give a stock an outperform recommendation based on positive ... Read Answer >>
  4. How can I determine if my portfolio is overweight in certain sectors?

    Learn why you should review your portfolio to determine if they are overweight in a certain sector, and find out why you ... Read Answer >>
  5. How can I calculate the expected return of my portfolio?

    Understand the components of the equation used to calculate the expected return of an investor's portfolio. Learn why the ... Read Answer >>
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center