What is Overweight?
Overweight refers to a given security which has been disproportionately allocated in an investment portfolio relative to a benchmark. It is the opposite of underweight.
How Does Overweight Work?
Investment portfolios are commonly built up and diversified according to a benchmark index. Any component of a given portfolio which outweighs the percentage suggested by the benchmark is described as overweight. For instance, if 50% of a portfolio is comprised of equity when the suggested equity allocation is only 35%, the equity component is considered overweight.
Overweight should not be confused with underweight, which describes a security or portfolio component which has been allocated at a lower percentage than the benchmark suggestion.
Why Does Overweight Matter?
Investors and fund managers will deliberately make certain portfolio components or securities overweight if they forecast disproportionate gains in the near future. If they are correct, the overweight component will help boost the overall performance of the portfolio.
