Fund Overlap
Any financial advisor will tell you to diversify. If you meet a former financial advisor living under a bridge and eating garbage out of a dumpster, they'll tell you to diversify. Talk to a high-powered financial advisor while skinny dipping in a swimming pool full of Dom Perignon at Beyonce's post-Oscars party, that champagne-soaked advisor will tell you to diversify. Everyone will tell you to diversify.
However...sometimes, you think you're diversified, but you're really not.
Take fund overlap. This situation comes up when you buy a bunch of different mutual funds (trying to diversify), but it turns out those funds own many of the same stocks.
You buy into Power Money's Global Leaders fund, which invests heavily in Amazon, Apple, and Microsoft. Meanwhile, you have money in InvestTech's Tech Winners fund, which (you guessed it) also invests heavily in Amazon, Apple, and Microsoft. Different funds. Same stocks. Fund overlap.
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Finance: What is a Family of Funds?6 Views
Finance a la shmoop what is a family of funds? a family, a mutual fund family [Family hugging each other]
that's what we're talking about here you know that go it's the story of a lovely
mutual fund yeah alright nevermind sorry here are
the mama bear income funds yeah filled with dividend stocks and bonds safe [Mama bear bowl tips out dividend and bonds]
steady reliable and here are the Papa Bear growth funds filled with tech
stocks and risky things that pay no dividend they traded high multiples too...
just for your pleasure yeah well he's great when he's sober
that Papa Bear and happy and not in his kind of market ie bear it makes a high
multiple stock do bad things all right well then there are the baby bear [Baby bear fund blocks building blocks appear]
funds aw cutie-wootie shmoody pie, here's a small cap fund young companies sowing
their oats not exactly certain where to urinate.. yeah we've been there it's a
not a pretty sight and here's an international fund China, Russia, Latin
America someday maybe Mars and here's an emerging market fund maybe that's where
Mars belongs....it's really small but it has big hopes like [Ant appears beside a tree]
that ant and the rubber tree plant alright we won't sing why do we label
these funds as being a family well because they all live in the same
investment management house that house might be called fidelity or capital
research for the American Funds brand or Franklin funds or BlackRock...Fund families
usually grew up around one or two successful individual funds that funds
managers garnered a solid reputation among the people who know on Wall Street [People give thumbs up to fund manager]
and while they simply tacked on additional funds leveraging the
superstar fund or two that brought them to the dance
tons of synergies happen when funds exist under one house shared legal work
shared research analytics shared portfolio management, duties, shared
brains, shared distribution compliance 12B-1 fees and more brain pulses a lot of
brains one house lots of funds if you're a partner in one of them well
financially it's lots of fund....you know it's like a family family affair [Family sitting in a garden eating food]