One of the beautiful things about ETFs is you can access an asset class or a broad market index and know exactly what you own – – without any overlap in holdings. You can easily construct a portfolio that gives you precise and systematic coverage of all desired asset classes. Not so with mutual funds. Because funds are only required to report holdings quarterly or semi-annually to the SEC, it is nearly impossible at any point in time to known what you own, or know whether your desired allocations are in place.
It’s common for people to hold a number of mutual funds from the same fund family. It’s also common for each of the mutual fund managers within that fund family to use the same group of analysts to determine what stocks to buy. As a result, managers of different funds will end up owning the same stocks, even though the investment objectives laid out in their prospectuses may be quite different.
While fund overlap is an issue at many fund companies, my sense is that it might be a bigger issue at the larger ones. So I asked the software Company Overlap [www.overlap.com] to calculate the amount of overlap for a group of Fidelity Funds. The output is below.
Pretty interesting stuff. If you own a few of the funds in the graph, you might wonder why you have a basket of funds that own a lot of the same stocks. One major caveat to the graph though – this is based on the most recent holdings information provided to the SEC. Since the funds don’t report their holdings very often (and those are on a delayed basis) I have no idea what the overlaps would be today!
