XIRR vs CAGR: which return number is telling you the truth?
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Lens · 3 June 2026
Mutual fund portfolio overlap: how to measure what you actually own
Holding five funds does not mean holding five portfolios. How to compute overlap between funds, what counts as high, and why diversification by fund count is a poor proxy for diversification.
3 min read
A portfolio of six equity funds sounds diversified. If four of them are large-cap funds benchmarked to the same index, it may hold barely more distinct companies than a single one of them – with the same top holdings, in similar weights, moving together.
What overlap actually measures
Overlap between two funds is the proportion of portfolio weight invested in the same securities. The standard construction takes, for every stock held by either fund, the smaller of the two weights, and sums those minimums.
Overlap(A, B) = Σ min(wᵢᴬ, wᵢᴮ) over all securities iWorked example: two funds, five holdings
| Holding | Weight in Fund A | Weight in Fund B | min() |
|---|---|---|---|
| Stock 1 | 9% | 8% | 8% |
| Stock 2 | 7% | 7% | 7% |
| Stock 3 | 6% | 0% | 0% |
| Stock 4 | 5% | 6% | 5% |
| Stock 5 | 0% | 5% | 0% |
| Remaining holdings | 73% | 74% | 22% |
| Overlap | 42% |
Forty-two percent of these two portfolios is the same money in the same companies. Holding both gives you roughly 1.6 portfolios, not 2 – and in a drawdown, the overlapping 42% falls together regardless of how different the fund names are.
How much overlap is too much?
There is no regulatory threshold and no single correct number, because it depends entirely on why you hold both funds. What can be said is what different levels imply.
| Overlap | What it implies |
|---|---|
| Below 20% | Genuinely different portfolios. Usually different market caps, sectors or geographies. |
| 20–50% | Meaningful shared exposure. Defensible if the funds differ in strategy or mandate. |
| Above 50% | Largely the same bet twice. Worth asking what the second fund adds beyond a second expense ratio. |
| Above 75% | Near-duplicates. Common among large-cap funds tracking the same benchmark. |
Doing it properly: the look-through view
- 01Take each fund's full disclosed holdings, not just the top ten – the tail is where genuine differentiation usually hides.
- 02Multiply each holding's weight by that fund's share of your total portfolio value.
- 03Sum by security across all funds. That is your true exposure to each company.
- 04Sort descending. The concentration in the top ten is the number that matters, not the count of funds you hold.
Investors are regularly surprised by step four. A single large-cap name appearing in the top ten of five different funds can end up as several percent of total net worth without ever having been a deliberate decision.
The limits of the measure
- Disclosures are periodic and lag the portfolio, so overlap is computed on a snapshot that is already stale.
- Equal weights in the same stock do not mean equal conviction – one fund may be trimming while the other accumulates.
- Overlap says nothing about quality, valuation or suitability. It measures duplication, not merit.
Common questions
- How many mutual funds should a portfolio hold?
- The count is the wrong question. Two funds with 15% overlap provide more genuine diversification than six with 70%. Measure the look-through exposure and the concentration in the combined top ten, rather than counting schemes.
- Does high overlap mean I should sell one fund?
- Not by itself, and nothing here is a recommendation to buy or sell anything. High overlap identifies duplicated exposure. Whether that matters depends on your objectives, your tax position and exit loads – all of which are outside what an overlap calculation can see.
- Can index funds overlap with active funds?
- Frequently, and heavily. An active large-cap fund benchmarked to an index it does not deviate far from can overlap 60% or more with a plain index fund tracking it, while charging considerably more.
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