Underweight in Investing: What Australian Investors Need to Know in 2025

When you hear the term ‘underweight’ tossed around in financial circles, it’s not about the bathroom scales—it’s a deliberate investment strategy that can shape your wealth. In 2025, as Australian markets face shifting economic winds and regulatory updates, understanding what it means to be ‘underweight’ in a sector or asset class is more relevant than ever.

Defining ‘Underweight’ in the World of Investing

In investment lingo, being ‘underweight’ means holding a smaller allocation to a particular asset, sector, or region compared to a benchmark or the broader market index. For instance, if the ASX 200 index has a 15% allocation to mining stocks and your portfolio only holds 8%, you’re said to be underweight mining.

This isn’t accidental—it’s a conscious tactical move. Investors or fund managers might go underweight on an asset class if they expect it to underperform, want to reduce risk, or see better opportunities elsewhere. Conversely, being ‘overweight’ means holding more than the benchmark allocation.

• Benchmark: The standard against which your portfolio is measured, e.g., S&P/ASX 200.
• Relative Positioning: ‘Underweight’ is always in relation to a reference point, not an absolute absence.

Why Go Underweight? 2025 Trends and Examples

Australian investors in 2025 are navigating a dynamic landscape. The Reserve Bank of Australia’s interest rate decisions, evolving ESG regulations, and global market volatility are prompting many to rebalance their portfolios. Here are some real-world scenarios:

• Interest Rate Sensitivity: With the RBA maintaining a cautious approach on rate hikes in 2025, many fund managers are underweight in interest-rate-sensitive sectors like real estate and utilities, anticipating slower growth.
• Commodities Volatility: Amid ongoing uncertainty in global resource demand, some are underweight in mining and energy stocks, especially after the 2024 commodity price corrections.
• ESG Considerations: New 2025 disclosure requirements mean some investors are underweight in companies with high carbon footprints, reallocating to greener sectors.

For example, an Australian superannuation fund might be underweight in fossil fuel producers due to ESG mandates, despite their historical strong returns, betting on long-term gains in renewables and tech.

Risks and Rewards of an Underweight Strategy

Going underweight isn’t a one-size-fits-all strategy. It’s about taking a stance—sometimes defensive, sometimes opportunistic. Here’s what to weigh up:

• Potential Upside: Freeing up capital for sectors you believe will outperform can boost returns if your call is right.
• Diversification Impact: Underweighting a sector may leave you less diversified and more exposed to swings in your overweight picks.
• Tracking Error: The more you deviate from the benchmark, the greater the chance your returns will differ (positively or negatively) from the broader market.

With super funds now required to publish more granular portfolio data in 2025, Australian investors can more easily see whether their fund manager is underweight or overweight in certain areas and ask the right questions.

How to Apply This in Your Own Portfolio

If you’re managing your own investments, review your portfolio’s sector and asset allocations against a relevant benchmark. Ask yourself:

• Are you underweight in any sector or asset class? If so, is it by design or default?
• Does your current underweight/overweight stance align with your outlook for 2025?
• Are you comfortable with the risks if your views don’t play out?

Platforms like Sharesight and the latest tools from major super funds make it easier to track and adjust your positions for a more deliberate, strategic approach in 2025.