Investments often come in different shapes and packages, but many have similar content. Two seemingly different mutual funds can own the same stocks. In late September 2007, for example, the top 10 holdings of Fidelity Large-Cap Value (FSLVX) and Fidelity Growth & Income (FGRIX) had four stocks in common.
There's nothing wrong with such portfolio overlap per se. However, you need know how much company-specific risk you have in your portfolio. You don't want your portfolio to be overly dependent on a few stocks. If you did, you wouldn't bother diversifying in the first place. Overlap flies in the face of diversification.
Here are some suggestions for how to avoid stock overlap in your portfolio. For more information about portfolio overlap, check out Funds 501: Avoiding Overlap When Building a Portfolio.
How to Avoid Overlap >>