What does underweight mean?

Underweight is about valuing something (be it a good or a service) based on both economic and non-economic criteria below its fair market value. Normally, this term is used when valuing a financial asset, and more commonly in the trading.

This underweight occurs when the expected value or return value of that financial asset is below the benchmark or performance of its sector. Therefore, the manager will be able to maneuver his portfolio to give greater importance or other weights to the securities that yield the most and offer him better benefits, reducing the weight of those that offer him less.

In order to underweight a financial asset it is necessary that someone or we have carried out an examination or analysis about the good and its real value. From this analysis we must conclude that, in reality, its real value is lower than it currently has, so we will underweight its value, bid less or sell it at a lower price. It will also allow us to buy the financial asset at a much cheaper price.

Undervaluing can provide a competitive advantage if we are correct in the future forecasts that we estimated and if market conditions are adjusted to what we have specified. Still, it should be noted that the underweight to a financial asset is the result of some objection that we have seen, or some characteristic that is not positive. Therefore, its marginal benefit is lower, and its demand is much lower.

On the other hand, in the case of goods we have to bear in mind that regular demands are difficult to maintain, since consumer tastes and preferences change due to multiple factors. To this, we must add the consumer behaviorBecause society itself also affects their way of thinking and consuming more or less a product.

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