how-to-fix-overlapping-investments-between-funds

How to Fix Overlapping Investments Between Funds

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Investing is an exciting way to grow wealth, but it can be confusing, especially for beginners. One common problem many investors face is overlapping investments between funds.

This happens when multiple funds in your portfolio invest in the same companies or assets. Overlap can increase risk, reduce diversification, and affect your returns.

If you are a student or working professional in Nigeria, South Africa, Ghana, Uganda, or Kenya, it is important to understand how to identify and fix overlapping investments to make your portfolio safer and smarter.

This guide will explain everything: what overlapping investments are, how to detect them, strategies to fix them, examples, pros and cons, comparisons, and expert tips.

 Understanding Overlapping Investments

What Are Overlapping Investments Between Funds?

Overlapping investments occur when two or more investment funds in your portfolio own the same stocks, bonds, or other assets.

For example, imagine you invest in Fund A and Fund B. If both funds hold shares of MTN Nigeria, your exposure to MTN is doubled without you realizing it. This means that if MTN underperforms, your losses will be higher than expected.

Overlapping investments reduce the benefit of diversification because your money is concentrated in the same assets instead of spreading across different opportunities.

 Why Overlapping Happens

Overlapping can happen for several reasons:

  1. Investing in similar types of funds: For instance, buying two technology-focused ETFs may include many of the same tech companies.

  2. Holding broad market funds: Large funds like S&P 500 ETFs may overlap with other U.S. stock funds.

  3. Lack of portfolio review: Beginners may not check fund holdings regularly, leading to hidden duplication.

  4. Global investments: International funds can also overlap with domestic ones if they include global giants like Apple, Microsoft, or Nestlé.

 Risks of Overlapping Investments

Reduced Diversification

The main benefit of investing in multiple funds is diversification, spreading risk across different sectors and countries. Overlap reduces this benefit because your portfolio depends on fewer unique companies.

 Increased Risk

If a stock appears in multiple funds, a decline in that stock can impact your portfolio more than expected. For example, if MTN falls 10% and you hold it in two funds, your loss is effectively doubled for that position.

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 Hidden Costs

Overlapping investments can cause hidden costs by giving the impression of owning more stocks than you actually do. You may think your portfolio is diversified, but it is not.

 How to Identify Overlapping Investments

Step 1: Check Fund Holdings

Every fund publishes its holdings, usually on the fund’s website or via your broker. Compare the holdings of each fund to identify common stocks, bonds, or assets.

 Step 2: Use Portfolio Tools

Several online tools can help detect overlaps automatically. Tools like Morningstar, ETF.com, or your broker’s portfolio tracker can show how much of your money is invested in the same assets.

Step 3: Look for Sector Overlap

Even if two funds do not hold the exact same stocks, they may invest in the same sector. For example, two energy ETFs may focus on oil companies, increasing your risk if oil prices drop.

 Step 4: Review Regional Exposure

Some funds overlap geographically. For example, a U.S. technology ETF and a global tech fund may both include Apple and Microsoft. This increases your exposure to U.S. tech companies unintentionally.

How to Fix Overlapping Investments

 1. Sell or Reduce Redundant Funds

If two funds overlap significantly, consider selling one or reducing your investment in it. Focus on keeping funds that complement each other rather than duplicate holdings.

 2. Diversify Across Sectors

Instead of holding multiple funds in the same sector, choose funds in different industries, like healthcare, technology, consumer goods, or energy.

 3. Choose Broad Market Funds Wisely

Large index funds are convenient, but they often overlap with other funds. To reduce duplication, pick one large index fund and complement it with niche or sector funds.

4. Mix Local and Global Funds

Investing in both domestic and international funds provides better diversification. For example, combine a Nigerian stock ETF with a U.S. or global ETF to reduce overlap and spread risk geographically.

 5. Use ETFs Strategically

ETFs are transparent, so you can see exactly what they hold. Choose ETFs with low overlap or those that cover markets you are not already exposed to.

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 6. Monitor Regularly

Portfolios change over time. A fund that did not overlap last year may now include stocks that you already own. Review your portfolio every 6–12 months to check for new overlaps.

Tools and Techniques to Reduce Overlap

 Portfolio Analysis Tools

  1. Morningstar Portfolio X-Ray: Checks fund overlap, sector exposure, and geographic distribution.

  2. Yahoo Finance Portfolio Tracker: Helps track individual fund holdings.

  3. Brokerage Reports: Local brokers in Nigeria, South Africa, Ghana, Uganda, and Kenya often provide portfolio summaries.

 Using Spreadsheets

Create a spreadsheet of your fund holdings. Include columns for stock names, sectors, and countries. Highlight duplicates to see where overlap occurs.

 Correlation Analysis

Some advanced investors use correlation analysis to measure how closely two funds move together. Funds with high correlation may overlap significantly.

 Examples of Overlapping Investments

 Example 1: Nigerian Stock Funds

Suppose you invest in two Nigerian equity funds:

  • Fund A: 10% MTN, 8% Dangote Cement, 6% Nestlé Nigeria

  • Fund B: 12% MTN, 7% Dangote Cement, 5% Guaranty Trust Bank

Here, MTN and Dangote Cement appear in both funds. Your exposure to these stocks is higher than intended, increasing risk.

Fix: Sell part of one fund or replace it with a fund that invests in different Nigerian companies.

 Example 2: Global ETFs

You own a U.S. technology ETF and a global tech ETF. Both include Apple, Microsoft, and Alphabet.

Fix: Keep only one fund with significant U.S. tech exposure and choose another ETF that focuses on non-U.S. technology markets.

 Pros and Cons of Fixing Overlapping Investments

 Pros

  1. Better diversification

  2. Reduced risk from single stock exposure

  3. Clearer understanding of your portfolio

  4. Easier to manage and monitor

 Cons

  1. Selling funds may trigger tax events

  2. Rebalancing may have transaction costs

  3. Requires time and research

Step-by-Step Action Plan to Fix Overlap

  1. List all your funds – Include stocks, ETFs, and mutual funds.

  2. Identify duplicates – Check both holdings and sectors.

  3. Prioritize funds to keep – Focus on those with unique holdings or lower fees.

  4. Sell or reduce overlapping funds – Adjust your portfolio gradually.

  5. Diversify strategically – Spread investments across sectors, regions, and asset classes.

  6. Review periodically – Schedule portfolio checks every 6–12 months.

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 Summary Table: Overlapping Investments vs Fixed Portfolio

Feature Overlapping Portfolio Fixed Portfolio
Diversification Low High
Risk Higher Lower
Portfolio Transparency Low High
Returns Consistency Unstable More Stable
Monitoring Required Low Moderate
Transaction Costs Hidden May incur small costs
Control Over Portfolio Low High
Global Exposure Possibly Redundant Balanced

 FAQs About Overlapping Investments

1. What is investment overlap?
Investment overlap occurs when multiple funds in your portfolio hold the same stocks or assets.

2. Is overlap bad?
Not always, but high overlap reduces diversification and increases risk.

3. How can I detect overlapping investments?
Check fund holdings, use portfolio analysis tools, or create a spreadsheet of your investments.

4. Should I sell overlapping funds immediately?
It depends. Gradually adjusting your portfolio is usually safer to avoid taxes and transaction costs.

5. Can ETFs overlap?
Yes, ETFs can overlap if they include the same stocks or sectors.

6. How often should I check my portfolio for overlap?
Every 6–12 months is recommended.

7. What if I own global and local funds?
Check for common holdings of global companies, like Apple or Nestlé, which may appear in both.

8. Does overlap affect returns?
Yes, overlapping can amplify losses or gains, reducing risk management benefits.

9. Are sector funds risky for beginners?
Sector funds are riskier than broad market funds, especially if overlapping occurs.

10. Can I use technology to fix overlap?
Yes, portfolio trackers, Excel sheets, and correlation tools help identify and reduce overlap.

11. How can students in Africa start fixing overlaps?
Begin by reviewing all investments, identify duplicates, and diversify gradually with ETFs or mutual funds.

Conclusion

Overlapping investments between funds are common, especially for beginners and working professionals in Nigeria, South Africa, Ghana, Uganda, and Kenya. While not always dangerous, overlapping reduces diversification and increases risk.

By checking fund holdings, using portfolio tools, diversifying across sectors and regions, and monitoring regularly, you can fix overlaps and make your portfolio safer, smarter, and more effective.

A well-managed portfolio helps you grow wealth steadily while avoiding unnecessary risk.

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