What is underweight?
In investing, underweight refers to a portfolio or fund that has less of a percentage of a particular stock or sector than the benchmark it’s being measured against, such as a stock market index.
Where have you heard about underweight?
Weightings are very important when investing. The terms underweight and overweight are commonly used by brokers and fund managers to indicate their outlook for stocks or markets relative to benchmarks.
What you need to know about underweight.
If, for example, a fund manager who uses the FTSE 100 as a benchmark says the portfolio is underweight HSBC, it means it holds a smaller percentage of HSBC shares than HSBC's weighting in the FTSE 100.
If fund managers rate a stock as underweight, it suggests they expect it to underperform the market. The opposite is true of an overweight stock. A portfolio manager can make stocks underweight if they think they won't perform as well when compared with the other securities in the portfolio.
Find out more about underweight.
Read our definition of overweight, which is the opposite of an underweighted stock.