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