Marketweight refers to the value rating given to a fixed-income instrument if it's credit spread is aligned with market expectations. The marketweight ranking system gives a subjective estimate of the accuracy of a fixed-income instrument's current credit spread which can then be used by an investor to determine whether that instrument is an attractive investment. The system includes three ranks - marketweight, overweight and underweight.
The marketweight rating indicates that the current credit spread of an instrument is in line with market expectations. Essentially, a fixed-income security deemed to be marketweight is said to offer a credit spread that's at or near the market's consensus. Just as stocks may have a buy, sell or hold recommendation, this credit rating system will rate a debt instrument as overweight, underweight or marketweight.
Being marketweight is similar to having a hold rating, whereas being overweight or underweight is equivalent to the buy and sell titles, respectively. Analysts will determine whether the current credit spread is an appropriate measure of risk for the investment and place a recommendation accordingly. Just as equity securities, fixed-income instruments are separated by several categories.
These factors include, among others, credit risk or credit rating , geography, industry, yield , and maturity. Fixed-income securities add another layer of consideration for contingencies, such as call-options and convertibility, that could further impact portfolio weighting decisions.
Fixed-income instruments such as investment-grade bonds might be described as being held at marketweight, meaning a portfolio is neither overweight nor underweight allocated to investment-grade bonds relative to a common benchmark. When a portfolio manager has a particular view, such as a bullish stance on bonds from the industrials sector, a portfolio can be slanted from the market's consensus by overweighting the portfolio to an overweight position in industrials bonds.
Fixed Income. Real Estate Investing. Mutual Funds. Your Money. Personal Finance. Your Practice. Popular Courses. But it can be even more confusing. In most cases, your portfolio should be made up of a diverse mix of stocks and other investments.
You should try to avoid being too heavily invested in any one thing. When your portfolio is unbalanced, it may mean that you are too heavily invested in one thing. So, what does this have to do with analyst ratings? So, for instance, in May , Apple had a weighting of 5. But none of this is very useful for the average person. Ratings are simply one piece that goes along with past price performance, earnings reports, profit margin, and other information. No one should ever buy or sell a stock based on what one single person thinks.
And this is especially true because analysts often disagree. A stock being labeled overweight means that it can be a good stock to buy, but it still falls short of being a "buy" stock, which is a stronger recommendation than "overweight. Outperform is similar to overweight. An outperform stock is right below a buy stock in level of recommendation.
It is expected to offer a better return than an index or the stock market overall. Some analysts will use "outperform" in place of "overweight. Look to your broker and other experts on the investing platform you're using. They should have an up-to-date listing of stocks they deem overweight or outperform. You can also perform your own research to find stocks with this rating and keep an eye out for undervalued stocks.
Table of Contents Expand. Table of Contents. Three- and Five-Tier Rating Systems. Why the Reference to Weight Is Used.
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A stock that has an equal weight rating means that an equity analyst believes the company's stock price will perform in line with or similar to the benchmark index being used for comparison. Although an overweight rating technically means the stock should have a higher weighting in the underlying benchmark, it usually is interpreted by market participants that the company is doing well, and its stock price should move higher.
In other words, investors view an overweight rating as an indicator that the stock price should perform better than the performance of the overall index that's being used as the baseline for comparison. If an analyst believes that a stock price should appreciate, the analyst will likely indicate the time frame and an expected price target within that time frame.
A criticism of overweight ratings is that equity analysts do not provide specific guidance as to how much of the stock should be purchased by investors. One investor might interpret an overweight rating as an indicator to buy 1, shares of the stock while another investor might interpret the rating differently and buy only 10 shares of the stock.
Also, the current position size of the stock that comprises an investor's portfolio plays a critical role in determining how many additional shares to purchase based on the new rating. If a stock currently has a large position within a portfolio and an investor buys more shares based on the overweight rating, the portfolio might not be diversified. In other words, the portfolio might be out of balance whereby too much of the investor's investment capital is tied up in one company. If the analyst turns out to be wrong, and the stock price goes down, the investor stands to lose more money because there's an overexposure to one stock.
The overweight rating provides a little guidance as to how specifically investors should go about purchasing the shares as it relates to their investment portfolio. Perhaps a portfolio that is heavy with technology stocks shouldn't purchase an additional technology stock based on an overweight rating since the portfolio could become out of balance. It's important to consider that an overweight rating by some equity analysts might be a short-term trade. Investors should investigate how an analyst conducts their recommendations, determine what they're using as a benchmark, and whether they're long-term or short-term investors.
The investment time horizon, including the investor's age, will likely determine how long a stock might be held in a portfolio. For example, a retiree might hold a stock for only a few months or years because it may need to be converted to cash at some point. A millennial, on the other hand, will have a much longer outlook or time horizon for holding that stock. The analyst's rating needs to be taken into context with the investor's time horizon, risk tolerance, and whether the money will be needed at some point in the future.
Analysts may give a stock an overweight rating due to positive earnings and raised guidance. For example, assume company DEF, a technology company, releases its quarterly earnings results and beats its earnings per share and revenue estimates. Podcast Episodes. Stock Markets. Index Trading Strategy. Portfolio Management. Your Money. Personal Finance. Your Practice. Popular Courses. Investing Stocks.
Key Takeaways An overweight rating on a stock usually means that it deserves a higher weighting than the benchmark's current weighting for that stock. Retrieved Categories : Stock market. Hidden categories: Articles with short description Short description is different from Wikidata All articles with unsourced statements Articles with unsourced statements from December Namespaces Article Talk. Views Read Edit View history. Help Learn to edit Community portal Recent changes Upload file.
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An overweight investment is an asset or industry sector that comprises a higher-than-normal percentage of a portfolio or an index. Overweight. Typically, an overweight rating on a stock means that an equity analyst believes the company's stock price should perform better in the future. Being marketweight is similar to having a hold rating, whereas being overweight or underweight is equivalent to the buy and sell titles, respectively. Analysts.