Overweight consists of valuing a good or service based on economic and non-economic criteria above its market value. In the slang of the financial markets, this term is widely used in trading for the valuation of a financial asset.
The overweight of an investment manager in one or more securities of the investment portfolio occurs as a result of the expected value or return of that financial asset is going to be above its benchmark or above the performance of its sector .
In this way, the manager will try to maneuver his portfolio by giving more weight to these securities (overweighting them) that can perform better and reducing the weight (underweighting them) of those that are generating a lower yield.
If a financial asset outperforms its industry over the past 12 months, it is said to be overvalued.
The opposite is underweight.
Overweight: Competitive disadvantage, yes or no?
A person undervalues a good or an asset because he has carried out an exhaustive analysis of that good and considers that its real value is higher than it currently has, therefore, he will bid or make an offer or a purchase in order that the good is attractive and appreciates in the future, as long as it is a financial asset.
The term overweight can lead to obtaining a competitive disadvantage with respect to market conditions, although it is true that it does not always have to be detrimental, since the price of that good or asset can go in a favorable direction to our future estimates about it. .
In turn, we must look at the demand side and think that if a good or an asset is overvalued it is because there is some characteristic of it that is positive and, therefore, its marginal utility will not be as decreasing as other similar goods. properties. Getting to increase its demand. We must also take into account the factor of competition, since it can cause the demand for a good to reach a very high level due to differentiation, utility, durability and quality factors. On the other hand, in the case of a financial asset, it will depend on the good economic prospects of that asset and of the economy as a whole.
In the case of a good, it is difficult to maintain a regular demand since people's expectations are moved by fashions and consumers change their preferences due to multiple factors, although the most determining factor is the good use of advertising and marketing in a competitive environment since this is the most direct and decisive way to reach the final consumer.
Overweight an asset
As we mentioned, this term is widely used in trading and in general in the financial markets sector.
Its use is instrumentalized with derivatives for long positions, since many investment houses publish their estimates regarding a security indicating that the security must be overweight, that is, it must be valued at a higher price, a situation that investors take advantage of to enter positions bullish until you meet the target price of that higher valuation.
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