Fund Overlap

AAA

DEFINITION of 'Fund Overlap'

A situation resulting from owning several mutual funds or exchange-traded funds (ETFs) that hold positions in some of the same securities. Fund overlap reduces the benefits of diversification for the investor.

INVESTOPEDIA EXPLAINS 'Fund Overlap'

While small amounts of overlap are to be expected, extreme cases of fund overlap can expose an investor to high levels of company or sector risk, which can distort portfolio returns when compared with a relevant benchmark.

It can be very difficult for a retail investor to keep up fund holdings, but a quarterly or annual check can help investors to understand the strategy of each individual fund, and provide an opportunity to compare top holdings from one fund to another.

If, for example, two separate mutual funds both have overweighted the same stock, it might be worth replacing one of the funds with a similar fund that doesn't carry that stock as a top holding. If a specific sector is overweighted in two funds (such as an overweight position in technology relative to the S&P 500), the investor will need to weigh the benefits and risks of this increased exposure.

RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Underweight

    1. A situation where a portfolio does not hold a sufficient amount ...
  3. Overweight

    1. A situation where a portfolio holds an excess amount of a ...
  4. Sector Fund

    A stock mutual, exchange-traded or closed-end fund that invests ...
  5. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
Related Articles
  1. Mutual Funds & ETFs

    Mutual Funds Are Awesome - Except When They're Not

    This investment is very popular, but that doesn't mean it comes without risk.
  2. Retirement

    Too Many Mutual Funds?

    Is there a magic number you should be aiming for? Find out here.
  3. Options & Futures

    20 Investments You Should Know

    To take advantage of all your investing options, you need to know what your choices are. Here we tell you about the diverse features and advantages of 20 different financial instruments.
  4. Mutual Funds & ETFs

    How To Choose The Right ETF?

    Choosing the right ETF really isn’t that complicated. If you stay focused on a few key areas, you may find the experience to be much easier.
  5. Chart Advisor

    ChartAdvisor for March 27 2015

    A weekly technical summary of the major U.S. indexes.
  6. Chart Advisor

    Is Now the Time to Invest in North America?

    Bullish chart patterns across the North American markets suggest that now might actually be a wise time to allocate closer to home.
  7. Mutual Funds & ETFs

    Want to Go Long Natural Gas? Eye the UGAZ ETN

    Is UGAZ the best way to play natural gas? Maybe not.
  8. Mutual Funds & ETFs

    How ETF Arbitrage Works

    ETF arbitrage brings the market price of ETFs back in line with net asset values when divergence happens. But how does ETF arbitrage work?
  9. Mutual Funds & ETFs

    Want Emerging Market REIT Exposure? Eye These ETFs

    It's possible (and easy) to invest in emerging market real estate from the United States — just look at these REIT ETFs.
  10. Mutual Funds & ETFs

    Should the YYY ETF Be on Your Radar?

    Why you should, or shouldn't, invest in YYY.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center