If you own mutual fund shares, the MRI will evaluate what they contain.
Let’s say you own both Fidelity’s Contra Fund and Fidelity’s Growth Fund, each of which invests in Apple in different proportions. The Contra Fund might have 3% of its holdings in Apple stock and the Growth Fund might only have 1%. If Apple does well, the Contra Fund has a competitive advantage over the Growth Fund. It will receive a 5-star rating, and its fund manager will be called a genius. But it was really by chance that one fund did better than the others.
This is also an example of Portfolio Overlap in which multiple funds hold the same stocks. That redundancy can reduce your true diversification and add complexity to managing your investments.
We see this all the time, and what it means is that not all strategies—or even all funds—are truly designed to diversify your risk. In fact, it’s likely that they are designed in part to diversify Fidelity’s chances of having a highly rated fund. If Fidelity were really confident in Apple, all of their funds would own the exact same amount of Apple stock.