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underweight

underweight – when a portfolio holds more of an asset than in the index

Underweight is used as a relative term, generally to something neutral, generally an index and often refers to a benchmark.

The opposite is overweight

See also neutral weight

Example

Stock A is 10% of an index.  A portfolio holds 8% of Stock A.  The portfolio is underweight Stock A by 2%

Germany is 10% of the European Index. Investment manager is concerned about Germany. Portfolio holds 8% and is 2% underweight

Outcome

If stock A’s share price rises, the portfolio performs badly relative to the index because it holds 2% less than the index

If German markets fall, the portfolio performs well relative to the index because it holds 2% less than the index

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