ETF essentials · 2 minute read
ETF overlap: am I buying the same investments twice?
The short answer
Owning several ETFs does not necessarily mean you are well diversified. Different ETFs can hold many of the same companies, creating more concentration than you realise.
Why it matters
Overlap occurs when two or more ETFs own some of the same investments. This is common when combining broad market ETFs with regional, sector or thematic ETFs.
Overlap is not automatically a problem. You may deliberately want additional exposure to a particular country or sector. The important point is to know that you are making that choice.
A simple example
Imagine an investor owns:
- A global equity ETF
- An S&P 500 ETF
- A technology ETF
The global ETF may already contain many large US technology companies. The S&P 500 ETF adds more exposure to them, and the technology ETF may increase it further.
The investor may think they own three separate areas. In practice, their portfolio could be heavily influenced by the same group of companies.
What to check
- What are the largest holdings in each ETF?
- How much do the ETFs hold in common?
- What is the combined exposure to each country and sector?
- Are you deliberately increasing exposure to a particular area?
- Would one broader ETF already provide the exposure you want?
Key term explained
Overlap means funds share some of the same investments. A count of shared company names is different from a calculation using their investment weights. Neither alone tells you your combined portfolio concentration.
For example, if 50% of your portfolio is in an ETF with 6% in one company, that fund contributes 3% of your portfolio to the company. Add the contributions from your other funds to see your total exposure. A Top 10 list gives only a partial view.
Before adding another ETF, look at the portfolio as a whole—not just the new fund in isolation.