Introduction
An overweight investment is the act of investing in an asset or industry such that it comprises a higher percentage of the portfolio or an index. An investor may choose to dedicate a greater portion of the portfolio to a particular sector that looks promising, or an investor may go overweight on defensive stocks and bonds when prices are volatile. Overweight may also mean an analyst’s opinion that a stock will outperform others in its sector.
Understanding Overweight Investments
Overweight and underweight are used by analysts to broadcast recommendations on buying or avoiding stocks of certain sectors. On the other hand, analysts attach an overweight recommendation to a stock that they believe will outperform its sector in the near future.
How it Works
When it comes to funds allocation, a portfolio manager mostly adjusts the weight of one asset or class of assets over another. For example, it is suggested to invest 40% of the portfolio in bonds and other securities, while the remaining 60% in stocks. If a person invests 73% in stocks, the excess investment is called overweight.
