The terms ‘underweight‘ and ‘overweight’ are used in the context of portfolio management to describe how a fund’s position size relates to that of its benchmark.
A fund is overweight if it has more exposure to a particular stock or sector than its benchmark. For example, if a fund has a 5% weighting towards a stock such as Legal & General, it is said to be overweight that stock, which is quite a small constituent of the FTSE All Share index (c. 0.6% at the time of writing). In effect, this is the expression of a positive view of the outlook for Legal & General shares.
The same applies at the sector level. If a fund has a prominent exposure to the financials sector more broadly, for example, it is likely to be overweight that sector.
If a fund holds a position in a non-index stock (unquoted holdings for instance or, in the context of a fund measured against a UK benchmark, overseas stocks), those will also be seen as overweight positions, because the have a zero weighting in the index.