What should you do about index fund overlap?

Pure play funds index funds (mutual funds or ETFs) are often misunderstood, as their holdings frequently extend beyond their stated focus. For example, while the S&P 500 is widely seen as a large-cap benchmark, it also includes mid-cap stocks, making it less "pure" than most assume. If you're aiming for large-cap exposure, you may unknowingly add mid-cap exposure due to the fund's composition. This complexity is common across many funds, which often span multiple asset classes or market caps. This creates what many call ETF overlap, where certain funds overlap with one another, creating overexposure in certain allocations and underexposure in others. In short, the reality of index funds is that they're not as simple as they seem

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Traditional approaches to address overlapping funds

Most folks are unaware of this overlap and just continue to operate as normal, but this can create risk because it's unclear how much over- and underexposures to various areas of the market due to these unclear overlaps.

A simple approach is to choose an asset allocation strategy that doesn't have to worry about overlaps - such as a one or two fund strategy. This approach, while simple, doesn't necessarily allow for more advanced investment approaches, such as a minimal beta portfolio, or allow you to adapt your asset allocation to adjust for concentrated investments you might have (RSUs, crypto, real estate).

Another approach is to pick specific funds and allocate not by market sector, geography, or growth style, but instead with specific ETFs or mutual funds. While this works in theory, for accounts such as 401ks, you don't always have access to the same funds you have in other accounts. Additionally, this approach doesn't let you optimize which allocations are dedicated to which tax-advantaged accounts (read more about this in another one of our insights).

Some others have built spreadsheets (https://youtu.be/tuIq6t6hdrU?si=Q3SKRAVJ0a_SCBzQ) that handle which security is weighted to which allocation. However, fund weights shift constantly—what might be 80% large-cap today could drop to 78% tomorrow. Regularly polling this information shouldn't be manual.

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We make managing the nuances of asset allocation straightforward

Managing your investments in index funds shouldn’t feel like cracking a complex code.  A portfolio performance analysis tool can help you see hidden overlap behind the tickers. Our tool helps simplify asset allocation by providing real-time insights, precision tracking, and rebalancing—all tailored to your unique financial goals.¹ 

Live fund weight updates 

We track the actual weights of U.S. securities in your index funds, updating in real-time as they change.  For instance, if your total market index fund changes its composition tomorrow, you’ll know instantly—no guesswork required.¹ 

Up-to-date asset attribution 

Your portfolio allocation is calculated based on the real-time composition of each fund. This means your allocations are up-to-date, helping you stick to your financial plan with confidence. 

Smarter rebalancing recommendations 

Buying and selling funds to hit target allocations can be tricky when one adjustment impacts another. Our advanced algorithm minimizes trades, saving you time and effort while keeping costs low and goals on track. 

Control Your Strategy 

Take charge of your investments. Our intuitive platform lets you bring your own asset allocation strategy and manage it across multiple brokerages. We handle the heavy lifting by performing all the attribution and rebalancing calculations for you, so you can focus on making the decisions that matter most.

To learn more about how to analyze asset allocation across accounts, take a deeper look at the Enrich App.

Footnotes

¹ Asset allocation calculations are based on metadata about each security from third-party vendors, such as Finnhub and Morningstar. Enrich Finance, LLC is not liable for inaccurate information provided by these vendors.  Investing in the market involves inherent volatility and carries the risk of loss of principal.