Portfolio Weight

  

Categories: Index Funds

Most money managers are measured against an index, a.k.a. "a bogey." Let's say that index is a form of NASDAQ, and Apple is 3 percent of its total weighting. And they have $100 million AUM. (See: Assets Under Management.) So if the manager has $3 million of AAPL in her portfolio, then she has a "market weight" amount of AAPL in her portfolio, meaning that she's not making a buy or sell decision on AAPL, as it represents in her portfolio the same amount it represents in her index against which she's measured.

So if AAPL goes up a lot...great. She won't gain or lose because of it. Same deal on the way down.

That's how portfolio weighting works. Managers can choose to over-and under-weight positions inside of it, usually thinking hard about the index against which they're measured. If they don't want a particular position to be an investment decision "statement," then they just make it a market-weight position, and they are notionally "hedged," as they don't care whether that position goes better than their index or not. They'll be roughly equivalently exposed to it.

Here's to making no decisions.

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