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. Asset Allocation

    An investment strategy that aims to balance risk and reward by ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  5. Overweight

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

    A stock mutual, exchange-traded or closed-end fund that invests ...
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. VelocityShares 3x Long Crude Oil ETN has the potential for huge returns, but there are several reasons why you might want to steer clear for now.
    Mutual Funds & ETFs

    A Leveraged Oil ETN For The Future (Just Not Now)

    VelocityShares 3x Long Crude Oil ETN has the potential for huge returns, but there are several reasons why you might want to steer clear for now.
  5. Latin American exchange-traded funds combined two of the hottest buzzwords of recent years: Emerging markets and low fees. Here are the biggest.
    Mutual Funds & ETFs

    Want To Invest In Latin America? Here are 22 ETFs

    Latin American exchange-traded funds combined two of the hottest buzzwords of recent years: Emerging markets and low fees. Here are the biggest.
  6. Investing Basics

    Putting Your Retirement Eggs in Several Baskets

    When trying to reduce the volatility of one's investments, it's good to diversify by varying one's portfolio assets or doing some alternative investing.
  7. Chart Advisor

    'Tis The Season For Food And Beverage Stocks

    The holidays tend to be a gift to investors in defensive consumer stocks. Here's a food and beverage sector ETF (and its top holdings) to consider
  8. Economics

    Profiting From China's Breakout: The Right Funds

    China's prospects for growth, and for rewarding investments, can't be debated. Here are some worthwhile funds to invest in, and the smart way of doing it.
  9. Chart Advisor

    Commodities Set Up For A Continued Move Lower

    Commodities have been suffering since late summer, and unfortunately for the bulls it doesn’t appear that the situation is about to change anytime soon.
  10. Pimco has stabilized its Total Return fund, but its returns are still shaky and its sales load is still a fat one.
    Professionals

    A Look At Pimco's Total Return Fund Post-Gross

    Pimco has stabilized its Total Return fund, but its returns are still shaky and its sales load is still a fat one.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center