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.

BREAKING DOWN '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.

  1. Benchmark

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

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

    1. A situation where a portfolio holds an excess amount of a ...
  4. Portfolio Management

    Portfolio Management is the art and science of making decisions ...
  5. Underlying

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

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