Investing
ETF Overlap: Are You as Diversified as You Think?
Learn why owning multiple ETFs doesn't guarantee diversification, and how to check whether your funds are quietly concentrated in the same stocks.
Educational only. Not financial, tax or legal advice, and not a recommendation to buy or sell anything. Any dollar amounts or tax rules here are tied to the year they were written and change annually — verify current figures and talk to a qualified professional about your own situation.
A lot of investors turn to ETFs for diversification, thinking they're spreading their risk across a broad range of stocks. But here's the catch—just because you own multiple ETFs doesn't mean you're actually diversified. If your funds hold the same stocks in large amounts, you might be more concentrated than you realize.
Why ETF Overlap Matters
Let's say you invest in three different ETFs, thinking you're spreading your money around. If they all have big chunks of their portfolios in the same handful of stocks, you're essentially doubling (or tripling) down on those companies. That can make your portfolio more volatile, especially if those particular stocks take a hit.
Case Study: VTI, SPY, and SPYG
Let's break this down with three popular ETFs:
- Vanguard Total Stock Market ETF (VTI): Tracks the entire U.S. stock market.
- SPDR S&P 500 ETF (SPY): Covers the 500 largest U.S. companies.
- SPDR Portfolio S&P 500 Growth ETF (SPYG): Focuses on growth stocks within the S&P 500.
At first glance, these seem like three different funds with broad exposure. But when you look under the hood, you'll see that they're all heavily weighted toward the same big names.
Top 10 Holdings in Each Fund
SPYG (S&P 500 Growth ETF)
| Company | Weight |
|---|---|
| NVIDIA (NVDA) | 12.74% |
| Apple (AAPL) | 6.73% |
| Microsoft (MSFT) | 6.30% |
| Amazon (AMZN) | 4.59% |
| Meta (META) | 4.31% |
| Alphabet (GOOGL) | 4.32% |
| Tesla (TSLA) | 4.43% |
| Alphabet (GOOG) | 2.81% |
| Broadcom (AVGO) | 4.10% |
| Eli Lilly (LLY) | 2.15% |
SPY (S&P 500 ETF)
| Company | Weight |
|---|---|
| Apple (AAPL) | 7.20% |
| Microsoft (MSFT) | 6.80% |
| Amazon (AMZN) | 3.40% |
| NVIDIA (NVDA) | 3.10% |
| Alphabet (GOOGL) | 2.00% |
| Tesla (TSLA) | 1.90% |
| Alphabet (GOOG) | 1.80% |
| Meta (META) | 1.70% |
| Berkshire Hathaway (BRK.B) | 1.60% |
| UnitedHealth (UNH) | 1.40% |
VTI (Total Stock Market ETF)
| Company | Weight |
|---|---|
| Apple (AAPL) | 5.80% |
| Microsoft (MSFT) | 5.40% |
| Amazon (AMZN) | 2.70% |
| NVIDIA (NVDA) | 2.50% |
| Alphabet (GOOGL) | 1.60% |
| Tesla (TSLA) | 1.50% |
| Alphabet (GOOG) | 1.40% |
| Meta (META) | 1.30% |
| Berkshire Hathaway (BRK.B) | 1.20% |
| UnitedHealth (UNH) | 1.00% |
If You Owned All Three ETFs Equally
Now, let's say you split your investment evenly across all three ETFs. Here's what your top 10 holdings would look like:
| Company | Weight |
|---|---|
| Apple (AAPL) | 6.58% |
| Microsoft (MSFT) | 6.17% |
| NVIDIA (NVDA) | 6.11% |
| Amazon (AMZN) | 3.56% |
| Alphabet (GOOGL) | 2.64% |
| Tesla (TSLA) | 2.61% |
| Alphabet (GOOG) | 2.00% |
| Meta (META) | 2.44% |
| Broadcom (AVGO) | 1.37% |
| Berkshire Hathaway (BRK.B) | 1.13% |
This means your top 10 holdings make up 34.61% of your total portfolio, even though you thought you were diversifying by owning three different ETFs.
The Diversification Myth
To get to the point, just because you own multiple ETFs doesn't mean you're truly diversified. If they're all holding the same mega-cap tech stocks, you might be more concentrated than you think.
How to Avoid ETF Overlap
If you're serious about diversification, here are a few ways to check your portfolio's overlap:
- 👀 Look at the ETF Holdings
- ⚖️ Consider Equal-Weight ETFs
- 🌈 Diversify Across Sectors and Asset Classes
Key Takeaway
Don't assume you're diversified just because you own multiple ETFs. A little research can go a long way in making sure you're actually spreading your risk.