By Adrian Mastracci, KCM Wealth
Special to the Financial Independence Hub
“Many portfolios are overloaded with same or similar investments. Few investors know about overlap.”
A frequent investing theme is owning more than 15 different mutual funds:
purchased over the years with little thought as to how the collection fits together, if at all.
Owning several funds can create a significant “overlap” of securities.
That is, individual holdings within the mutual funds are often the same, or very similar.
While fund names may differ, their holdings do not.
For example, mutual funds buy from a short list of Canadian stocks, like banks.
Having several accounts can also have you owning many of the same stocks in each.
This may tilt your portfolio in one or more asset type or sector. However, you hardly see anything written about portfolio overlap. Most investors have little or no knowledge of the implications of overlap, such as:
• Owning a collection of funds heavy on overlap reduces your portfolio diversification.
• Overlap increases if you choose funds from similar investing styles and sectors.
• Portfolios that overindulge on overlap can also be affected in their long-term results.
Some portfolios have more than 40% overlap.
Problems can arise with as little as 10% overlap. Continue Reading…