Overweight (stock market)

Overweight (stock market)

Overweight is part of a three-tiered rating system, along with "underweight" and "equal weight", used by financial analysts to indicate a particular stock's attractiveness. If a stock is recommended to be "overweight", the analyst opines that the stock is a better value for money than others.[1]

In a portfolio, overweight indicates that an investor holds proportionately more than the benchmark weight of a certain asset (a share, bond, industry/sector, country, currency or asset class etc.).[2]

Examples

Suppose that Technology stocks make up 10% of the relevant stock index by market value, i.e. the weight of the Technology sector in the index is 10%.

Overweight — Suppose that an investor holds 15% of his/her investment in Technology stocks then, the investor's stock portfolio is 5% overweight in Technology stocks.

Suppose further that the investor is advised by his broker or financial advisor that Technology should be "overweight" then, the investor is being advised to hold more investments in Technology, as a percentage, than the weight of that asset in the index/market. i.e., more than 10% by value of Technology shares in this example.

Underweight — In contrast to overweight holding, if the broker advises that Technology should be "underweight", the recommendation to the investor is to hold less than 10% by value of Technology shares.

Equal weight - The third possibility is that the broker advises that Technology should be "equal weight" in which case, the recommendation is to hold 10% by value of Technology shares.

References

  1. ^ Updegrave, Walter (2003-08-19). "Glossary please! What do terms like "overweight" and "underweight" mean, anyway?". CNNMoney.com, Ask the Expert. http://money.cnn.com/2003/08/19/pf/expert/ask_expert/. Retrieved 2007-01-03. 
  2. ^ http://www.thisismoney.co.uk/jargon/O/overweight

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