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neutral weight

neutral weight – when a portfolio holds the same amount of an asset as the index

Neutral weight is used as a relative term,  generally regarding an index and in the context of a benchmark.

See overweight and underweight

Example

Stock A is 10% of an index.  A portfolio holds 10% of Stock A.  The portfolio has a neutral weight to Stock A

Germany is 10% of the European Index. Portfolio holds 10% and is neutral weighted

Outcome

If stock A’s share price rises, the portfolio performs in line with the index because it holds the same as the index

If German markets fall, the portfolio performs in line with the index because it holds the same as the index

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