Zestt

Well if the manager wanted to avoid overvalued stocks he would not have them in his portfolio at all . I guess he would have a negative postion relative to the benchmark since his weight would be 0 . As an active manager he can pick and choose which ones he thinks will appreciate . In most cases the manager will also carry stocks that he does not feel very strongly about and underweight those securites relative to the benchmark . The major reason for this I think is a reduced tracking error .
In the real world i dont think most managers can overwieght as much as they like because they would have restrictions based on the IPS eg. A single security cannot be more than 10 % of portfolio .....etc

Also I believe there is a difference b/w " negative weights" which is just weights less than the benchmark and " Negative Active weights" which would be less than 0 % i.e short positions