Underweight

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.

RELATED TERMS
  1. Benchmark

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

    A grouping of financial assets such as stocks, bonds and cash ...
  3. Overweight

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

    An analyst recommendation that means a stock is expected to do ...
  5. Portfolio Management

    Portfolio Management is the art and science of making decisions ...
  6. Portfolio Manager

    The person or persons responsible for investing a mutual, exchange-traded ...
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. Mutual Funds & ETFs

    Top 4 Royce Funds for Retirement Diversification in 2016

    Discover four of The Royce Funds mutual funds suitable for diversifying retirement portfolios that focus on investing in small-cap companies.
  9. Mutual Funds & ETFs

    Top 3 VALIC Funds for Retirement Diversification in 2016

    Learn about the VALIC fund family, its performance relative to its peers and the top three VALIC funds to consider for retirement diversification in 2016.
  10. Mutual Funds & ETFs

    The 4 Best T. Rowe Price Funds for Growth Investors in 2016 (TROW)

    Discover the four best mutual funds administered and managed by T. Rowe Price that specialize in investing in stocks of growth companies.
RELATED FAQS
  1. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  2. Do mutual funds require a demat account?

    A dematerialized account enables electronic transfer of funds. The account is used so an investor does not need to hold the ... Read Full Answer >>
  3. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  4. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  5. Does OptionsHouse have mutual funds?

    OptionsHouse has access to some mutual funds, but it depends on the fund in which the investor is looking to buy shares. ... Read Full Answer >>
  6. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center