What does equal weight and over weight mean in the stock market?

Answer 1

The answers about 'benchmarking' are correct, but I think you want something a bit more specific here. Some research opinions are given using the terms overweight, underweight and neutral (or market weight.) Research companies that rate stocks this way do so because their research is primarily intended for the professional investor market, such as those that approach a portfolio with a 'benchmark' bogey to beat.

For you purposes you can simply interpret these ratings as follows:

Overweight = outperform = positive = buy
Underweight = underperform = negative = sell/avoid
Market weight = neutral = hold

Good luck!

Answer 2

This term has to do with benchmark investing.

Most mutual funds have a benchmark against which they try and outperform. There is a huge incentive for money managers to outperform since money can freely flow from one fund to another. That is, money tends to go to managers who outperform and away from those that underperform (e.g. Janus).

"Equal weight" means that the stock is held in the same proportion in the portfolio as the fund's benchmark. Overweight means it is held in a higher percentage.

For example, let say that you followed Index A, that had Company B, C, D, E which were 50%, 25%, 15% and 10% of Index based. The index is based on market weighting. Say you loved company B and D, were indifferent in C and thought E was crap. You might go "overweight" by taking a larger than 50% and 15% weighting in B and D. You would probably take a 25% "equal weighting" in C and the balance in E. You are explicitly making a bet that B and D will go up more than E. C can do anything because you have a market weight position, so it won't hurt you either way.

Answer 3

If you are referring to portfolio structuring csanda gives an excellent answer to your question.

If you are referring to broker's ratings, then these terms mean something altogether different. If a broker rates a stock equal weight, it can in most cases be construed as an avoid rating. Brokers will rarely come out with sell or under-weight ratings due to client relationship issues. An overweight rating ostensibly means the broker is recommending the stock, but you would probably do better picking stocks at random than acting on brokers' rating changes; study after study has shown they carry very little value (Google the subject if you want more info on the studies).

Good luck!

Answer 4

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Answer 5

What Does Weight Mean

Answer 6

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Answer 7

This a term used to denote wether the stock is overweighted with respect to the benchmark its linked, or not. This is generally true for passive investing when an index is being replicated for portfolio.

Answer 8

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Answer 9

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