Underweight
Candlefocus EditorFrom a portfolio manager's point of view, an underweight portfolio is not necessarily indicative of a bad situation. It simply means the portfolio manager is not bullish on the asset. This strategy can be beneficial, allowing the portfolio manager to reduce risk and hedge against losses in the event the security does not perform as expected.
From an analyst's perspective, an underweight stock is determined by metrics used in the security evaluation. Factors such as price, earning, and market sentiment are used to determine whether a security has normal weight or is underweight. Additionally, an analyst may use technical analysis and charting to provide insight into the performance of a security over a certain period of time.
Overall, underweight is a financial term used to describe two different financial circumstances. An underweight portfolio is not necessarily a sign of danger, while an underweight stock is determined by various metrics and analysis. Analysts and portfolio managers alike should consider possible underweight scenarios when making decisions about which securities to include or exclude from their portfolios.