what is overweight 
an overweight investment is an asset or industry sector that comprises a higher than normal percentage of a portfolio or an index an investor might choose to devote a greater portion of the portfolio to a sector that seems particularly promising or an investor might go overweight on defensive stocks and bonds at a time when prices are volatile overweight and its opposite underweight are also used by analysts and commentators in recommendations to buy or avoid particular investments or sectors for example if federal defense spending is about to be increased or decreased an analyst may recommend that an investor go overweight or underweight on defense related companies in addition many analysts attach an overweight recommendation to a stock that they believe will outperform its sector in the coming months the alternative ratings are equal weight for average performers or underweight for below average performers understanding overweightstrictly speaking overweight refers to an excess amount of an asset in a fund or investment portfolio compared to the benchmark index that it tracks indexes are weighted that is they track the performance of a selection of stocks each of which represents a percentage of the index that varies according to its perceived impact on the whole mutual funds also are weighted and some percentage of the fund may be devoted to cash or to interest bearing bonds in order to reduce overall risk this is why the performances even of index mutual funds may vary fractionally from each other and from the index itself the fund manager s goal is to meet or exceed the index that it is compared to that may be achieved by overweighting or underweighting some parts of the whole beating the trendotherwise there is no firm definition of overweight it is simply a variation from the norm whatever that might be for example the manager of a global technology mutual fund who foresees a downturn ahead might shift some assets going overweight on some of the stablest blue chip companies out there an investor with a diversified portfolio who foresees a downturn might go overweight on interest bearing bonds and dividend paying stocks overweight can also refer in a looser sense to an analyst s opinion that a stock will outperform others in its sector or the market in this sense it is a buy recommendation when an analyst suggests underweighting an asset they are saying it looks less attractive for now than other investment options bucking the normportfolio managers seek to create a balanced portfolio for each investor and personalize it for that individual s risk tolerance a younger investor with a moderate appetite for risk for example might be best served by a portfolio that is 60 in stocks and 40 in bonds if the same investor then opts to move 15 more of the balance into stocks the portfolio would be classified as overweight stocks a portfolio can be overweight in a sector such as energy or in a specific country it may be overweight in a category such as aggressive growth stocks or high dividend yielding stocks in this context the term overweight usually implies that the portfolio is being compared to a predefined standard or a benchmark index overweighting pros and consactively managed funds or portfolios will take an overweight position in particular securities if doing so helps them to achieve greater returns for example the fund manager may raise a security s weight from its normal 15 of the portfolio to 25 in an attempt to increase the returns of the overall portfolio another reason for overweighting a portfolio holding is to hedge or reduce the risk from another overweight position hedging involves taking an offsetting or opposite position to the related security the most common method of hedging is through the derivative market for example if you hold shares of a company currently selling at 20 per share you may purchase a one year expiration put option for that stock at 10 a year later if the stock is selling at more than 10 you let the put expire losing only the price of the purchase should the stock be selling for under 10 you may exercise the put and receive 10 for your shares the danger of overweighting one investment is that it can reduce the overall diversification of their portfolio a reduction in diversification can expose the holding to additional market risk may increase portfolio gains returnshedges against other overweight positionsreduces portfolio diversificationexposes portfolio to more risk overall