At the end of last week the

Van Wagoner

funds proved an old saw: Even though funds in one family might have different labels, they often bet big on the same stocks.

The firm's fleet of five funds, all run by Garrett Van Wagoner in his freewheeling style, graced

scorecards as the week's top-five performers. The top four funds, each with a different capitalization or sector focus in its name, posted remarkably similar gains ranging from 16.2% to 16.8%.

Why the lockstep moves? Despite their different names, the funds each have some 20% of their assets pegged to essentially the same top-five holdings, which rose 23% on average last week. The mirror moves raise diversification issues for fund investors: namely, does buying a group of funds from within one family constitute diversifying? If you do buy a couple of funds in the same fund family, look at their holdings closely to make sure you're not buying two funds that have the same DNA.

The problem of unwitting portfolio overlap can leave investors under-diversified, making them overly dependent upon the success of a handful of companies. When those stocks rise, investors can see big gains, but when they fall, their supposedly diversified portfolio can tank in a hurry.

"People are always shocked when I run an overlap report and show them how little diversification they have," says financial planner Frank Armstrong, president of Miami-based

Managed Account Services

and chief investment strategist for

DirectAdvice.com

. "I had one client who owned 27 large-cap growth funds and all he really had was a malformed and expensive

S&P 500

index fund."

The five Van Wagoner funds' overlap at the top of their portfolios is striking, and indicates that there might be little sense in owning more than one of the fast-trading, high-octane funds.

"A lot of his funds invest in the same stocks. It might not be fair to say

the Van Wagoner funds are identical. But to the extent that investors might feel they need to buy two or three Van Wagoner funds, it's an issue," says Chris Traulsen, the

Morningstar

analyst who covers the fund group.

The overlap is mainly due to Van Wagoner's style and his penchant for buying parts of companies when they're private. When he finds a company he likes, he often buys it in the private market and distributes it evenly among his funds, later trading in and out of the stock once it's public.

One example is the software shop

Ariba

(ARBA)

, which popped into each fund when he started buying the company in 1997, two years prior to its initial public offering or

IPO. Now the stock, clearly a large-cap with a market capitalization of over $25 billion, is in each fund's top-five holdings even though three of the funds are chartered to focus on micro-caps, mid-caps, and emerging growth companies.

"That's something you can expect from time to time," says Peter Kris, a spokesman for the firm. "If you look at the funds, on the whole they're different, but the top holdings can be very similar." He adds that at least three of the funds' favorites -- Ariba,

Interwoven

(IWOV)

and

Netro

(NTRO)

-- were initially bought in the private market.

He has a point.

(VWMCX) - Get Report

Micro-Cap Growth's median market capitalization is lower than the others and the all-cap

(VWTKX)

Technology fund tends to focus on bigger-cap companies than the others. Last year, the funds' performances ranged from 127% to 291%.

But the funds' recent returns, similar top holdings and the fact that all but micro-cap growth are classified as mid-cap growth funds illustrate why investors might not need two Van Wagoner funds. Even Kris concedes the funds, of which Micro-Cap Growth and

(VWEGX)

Emerging Growth are closed to new investors, are essentially different shades of the same color.

Problem is, that's not necessarily clearly communicated to investors. The funds' most recent shareholder report notes their similar objectives, but says their portfolios will be different.

"I think they could do more to differentiate among the funds and to alert investors to their similarities," says Morningstar's Traulsen.

Kris admits that the overlap isn't prominently disclosed, saying it will be addressed in a new question-and-answer section on the firm's Web site. "We haven't added Q&As to the Web site yet. It'll definitely be part of the site; we've got someone new in here to work on the site," he says.

The Van Wagoner funds' overlap might be eye-catching, but it's hardly the only shop that's guilty.

Janus and other popular fund shops are famous for holding many of the same stocks as their managers choose from the same analysts' picks.

"A lot of fund families have a huge overlap. Look at Janus and

Fidelity

, many of those funds have the same stocks because they're choosing from the same recommendations," says Armstrong. He and others say investors who assume funds with different names hold different stocks, could be in for a surprise.