Underweight

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Woodford glossary

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 underweight if it has less exposure to a particular stock or sector than its benchmark. For example, in the UK, stocks like Royal Dutch Shell and HSBC dominate the FTSE 100 and FTSE All Share indices – both, at the time of writing have index weights in excess of 5%.

If a fund has less exposure to HSBC, say a 3% position, than the FTSE All Share index it is said to be underweight HSBC. This is interpreted as the expression of a negative view of the outlook for HSBC’s shares – the fund manager aims to benefit in relative performance terms by owning less of a falling stock than the benchmark. The decision to exclude HSBC from the portfolio altogether also results in an underweight position, albeit one which is expressed with more conviction.

The same applies at the sector level. If a fund has zero exposure to the oil sector, for example, it is deemed to be significantly underweight that sector. Funds that are managed with a relative return perspective, are unlikely to take such an extreme view, because the risk to relative performance of having no exposure to such a big sector in the index would be deemed too great to bear. Funds that are managed with an absolute return perspective, however, may well be prepared to take such a view if they hold enough conviction to do so.

 

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund’s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at www.fundinfo.com.

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