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. Benchmark

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

    1. In derivatives, the security that must be delivered when a ...
  3. Underperform

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

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

    The person or persons responsible for investing a mutual, exchange-traded ...
  6. Portfolio Management

    The art and science of making decisions about investment mix ...
Related Articles
  1. 4 Strategies For Managing A Portfolio ...
    Mutual Funds & ETFs

    4 Strategies For Managing A Portfolio ...

  2. Portfolio Management For The Under-3 ...
    Investing Basics

    Portfolio Management For The Under-3 ...

  3. Peter Lynch On Playing The Market
    Active Trading

    Peter Lynch On Playing The Market

  4. 7 Common Investor Mistakes
    Retirement

    7 Common Investor Mistakes

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center