Overweight (stock market)
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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 is saying, in her opinion, the stock is better value for money than others.[1]
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]
[edit] 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 also that you are an investor, and you hold 15% of your investment in Technology stocks. You are 5% overweight in Technology (or rather your investment portfolio is).
Suppose further that your broker or financial advisor tells you that Technology should be "overweight." You are being advised to hold more of your investments in Technology, as a percentage, than the weight of that asset in the index/market. Your broker means that he recommends you to hold more than 10% by value of Technology shares.
Underweight — This time suppose next that your broker tells you that Technology should be "underweight." On this occasion, your broker is recommending you to hold less than 10% by value of Technology shares. If you decide to follow your broker's advice, you might reduce the weight of Technology in your portfolio, by selling more than a third of your Technology shares.
Equal weight - The third possibility is that your broker tells you that Technology should be "equal weight." Your broker is recommending you to hold 10% by value of High-Tech shares. Again, if you are following your broker's advice, you would sell some Technology shares to reduce the weight to 10%.
[edit] References
- ^ 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.
- ^ http://www.thisismoney.co.uk/jargon/O/overweight
