An investor looking for broad and diverse equity exposures may end up owning a global equity fund, some regional funds (say US, Europe and Emerging Markets), various factor exposures (growth, quality, etc.) and any number of thematic funds (artificial intelligence, infrastructure, energy, etc). Maybe more. That sounds like a considerable spread of equity investments, but what if the same companies feature in several of them? Or if cross-sections within them are vulnerable to similar market forces, even if you’re careful to avoid more obvious overlaps?

There may be good reasons to own each fund (or stock). The question is whether the investor understands the combined position. Adding a fund does not necessarily add a new equity exposure. Sometimes it may add weight to one you already hold.

Different funds may have similar exposures

Fund names often describe mandates, not unique sets of companies. A business can qualify for a global portfolio because of its size, a growth portfolio because of its prospects, and a quality portfolio because of its perceived financial strength. It may also feature in a thematic or regional fund. Take a simple but illustrative case of global equities and US equities, a more common overlap trap than you might expect. Adding a US fund to a global equity allocation could be a deliberate overweight, but it probably shouldn’t be mistaken as adding a new region (Figure 1).

Figure 1: A passive global fund is likely to already hold a meaningful share of US exposure

Source: MSCI World Index factsheet, as at 31 August 2026; S&P Dow Jones Indices, S&P 500; Man calculations. MSCI World’s US index weight was 72.14%. The illustrative blend assumes a 70% allocation to MSCI World and a 30% allocation to the US-focused S&P 500; its US exposure is calculated from those allocation weights. The chart shows index country exposure, not overlaps in individual holdings, the composition of any particular fund, or the geographic sources of companies’ revenues. Indices cannot be invested in directly.

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Again, overlap is not inherently a problem. An investor might specifically want a larger position in a company, region or theme. The potential pitfall arises when a portfolio accumulates that position without anyone explicitly making that decision.

Even different funds may share similar vulnerabilities

A UK equity fund might own housebuilders, while a European fund holds listed commercial-property companies. Their revenues and markets differ, but higher borrowing costs could hurt both by making mortgages less affordable for buyers and refinancing more expensive for property owners. Such common exposure is easier to see when you ask what could go wrong for each fund, rather than which stocks they share.

One more. A US software fund and a European biotechnology fund may seem to have little obvious business overlaps. But if both hold companies whose value depends heavily on anticipated future earnings, a rise in interest-rate expectations could weigh on these stock valuations. Their company-specific risks can remain quite different, while their sensitivity to the cost of capital may be shared.

Neither outcome is inevitable. The point, we think, is to seek to identify shared sensitivities rather than merely rely on different exposures to provide diversification.

Stock narratives can shift quickly in the current environment

One example is how a ‘defensive’ utility could become part of a growth story. Utilities have traditionally attracted investors for their relatively predictable demand and dividends. But rising electricity demand from data centres has made growth potential a structural part of their story. That could change how investors price utilities, and how they may respond if expectations for data-centre construction shifts.

For a broader market angle, you just need to look back at the global stock market in the last few years. Market direction matters, but it likely doesn’t tell you everything about what was happening within the equity market. An index can slide overall while one of its sectors surges. Take 2022. Yes, this year was an anomaly in more ways than one but it provides a clear illustration of how an unusual energy backdrop (already tightening demand coming out of the COVID pandemic amplified by the supply shock of the Russia-Ukraine war) became a case in point for why “equities were down” may be the description for an index’s performance, but not for every opportunity within it. In 2022, the MSCI World Energy Index jumped more than 40% while the MSCI World Index fell over 17%¹.

From equity investing to equity strategy

Beyond side-by-side analysis of funds, or even stock-by-stock comparisons, we think this speaks to how an investor could apply an approach from equity investing to equity strategy. That is, not just focusing on what each equity holding or exposure is intended to do in a portfolio but also thinking about the approach in a broader strategic sense.

One side is the exposures themselves, which we’ve discussed here. One equity fund may provide broad market exposure. Another may express a high-conviction view. A third may seek opportunities that depend less on the broader market rising. These can all play valid roles, but they may offer less diversification than you think. Two exposures serving the same purpose may be intentional. But if it’s hard to explain the difference, these allocations deserve another look.

This is not an argument for owning fewer equity funds or reducing intentional exposures. It’s more an invitation to take an honest look at what you own, why and how.

The how is where it really gets interesting to us. How investors might diversify the equity investing approach itself and not just seek diversification between various funds or holdings. The how centres on diversification across complementary strategies rather than depending on a single stock, a single fund or even a single equity strategy.

More on that to come.

1. MSCI, MSCI World Energy Index factsheet, Annual Performance (%) table, 2022; US-dollar gross returns.