Underweight

AAA

DEFINITION of 'Underweight'

1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's weight in the underlying benchmark portfolio. This often occurs when a portfolio is actively managed and underweighting a security may allow the portfolio manager to achieve returns greater than that of the benchmark.

2. An analyst's opinion regarding the future performance of a security. Underweight will usually mean that the security is expected to underperform either its industry, sector, or even the market altogether.

INVESTOPEDIA EXPLAINS 'Underweight'

1. Portfolio managers can make the securities underweight if they believe will underperform when compared to other securities in the portfolio. For example consider a security in the benchmark portfolio with a weight of 10%. If the manager believes the security will underperform over a certain time period, they will allocate the security a weight of less than 10% for that period, in hopes of increasing the portfolios expected return.

2. An example of an analysts underweight definition is: The stock's return is expected to be below the average return of the industry over the next eight to 12 months. Analyst's definitions vary regarding the time frame used and the benchmark the security is compared against.

RELATED TERMS
  1. Underperform

    An analyst recommendation that means a stock is expected to do ...
  2. Overweight

    1. A situation where a portfolio holds an excess amount of a ...
  3. Portfolio Manager

    The person or persons responsible for investing a mutual, exchange-traded ...
  4. Benchmark

    A standard against which the performance of a security, mutual ...
  5. Underlying

    1. In derivatives, the security that must be delivered when a ...
  6. Portfolio Management

    The art and science of making decisions about investment mix ...
RELATED FAQS
  1. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  2. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. How can a company execute a tax-free spin-off?

    The two commonly used methods for doing a tax-free spinoff are either to distribute shares of the spinoff company to existing ... Read Full Answer >>
  5. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  6. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    4 Strategies For Managing A Portfolio Of Mutual Funds

    Discover some common strategies to devise a plan and maintain your holdings to reflect it.
  2. Investing Basics

    Portfolio Management For The Under-30 Crowd

    Young investors have some advantages over their older counterparts. Read on to learn how to build a portfolio that will grow with you.
  3. Active Trading

    Peter Lynch On Playing The Market

    Everyone can appreciate great advice from a professional. Read on to benefit from the vast experience of Peter Lynch.
  4. Retirement

    7 Common Investor Mistakes

    Find out how to avoid - or fix - these frequent investing errors.
  5. Mutual Funds & ETFs

    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.
  6. Fundamental Analysis

    Is Your Portfolio Overweight?

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

    Modern Portfolio Theory: Why It's Still Hip

    See why investors today still follow this old set of principles that reduce risk and increase returns through diversification.
  8. Investing

    Some Overseas Markets May Prove More Resilient

    Though global markets sold off and have continued to slip in recent days, stocks in Europe and Japan are still faring better than their U.S. counterparts.
  9. Mutual Funds & ETFs

    Why Mutual Funds are Still Better than ETFs

    Mutual funds might not be as sexy as they used to be, but they offer some advantages over ETFs – especially for certain types of investors.
  10. Investing

    The Number One Reason Why Most Traders Fail

    We show you the simple tools, availble to everyone, to succeed as an active trader: education, experience, charts, vision, and risk management systems.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!