ETF Overlap 101: How to spot, measure and optimize your portfolio

Exchange-traded funds (ETFs) have emerged as an efficient and cost-effective way to build a diversified portfolio. This is why many investors turn to this investment vehicle to reduce their risks. Investing in multiple ETFs, however, can lead to unintended consequences. Among these is fund overlap.  

In this article, we’ll discuss everything you need to know about ETF overlap. We’ll explain how it happens, provide tips on how to manage it, and list tools to help you identify overlapping holdings.  

If you plan on adding ETFs to your portfolio but want to avoid doubling down on the same set of exposures, this guide can offer useful tips. Keep reading and discover practical strategies for maximizing your returns.   

What is ETF overlap and when does it happen? 

ETF overlap – also called asset or fund overlap – occurs when you invest in multiple ETFs that hold the same securities. An example would be if your basket of funds contains stocks or bonds from similar companies or sectors.  

While a certain level of overlap is expected if you hold several ETFs, huge overlaps – especially if unintended – can increase your exposure to risks. Overlapping holdings also defeats the purpose of investing in ETFs, which is diversification.  

That’s why it’s crucial to keep track of your investment to see where these might be doubling up. This can help you rebalance your portfolio and ensure that it aligns with your financial goals.    

You can check out this guide if you want to learn more about how to start investing in exchange-traded funds.  

ETF overlap example 

One misconception about owning multiple ETFs is that this automatically means more diversification. But if you hold too much of the similar securities, your investments might be more concentrated than you realize. 

Let’s say you decide to invest in three different ETFs, with the goal of spreading your money around. However, if the ETFs contain mostly the same stocks, you end up essentially doubling down – or even tripling down – on the same companies. This lessens the diversification you're aiming for and makes your portfolio more volatile. 

Now, let’s say you want to focus on mega-cap tech stocks and decide to invest in the following:  

• Vanguard Total Stock Market ETF (VTI), which tracks the whole US stock market  
• SPDR S&P 500 ETF Trust (SPY), which covers S&P 500 companies 
• Invesco QQQ Trust Series I (QQQ), which focuses on Nasdaq 100 companies 

At first glance, these ETFs seem to have broad exposure. But if you take time to analyze their holdings, you’ll see that ETF overlaps are weighted heavily towards the same companies. 

Here’s a side-by-side comparison of the top 10 holdings of these ETFs. Figures are current as of March 13, 2025.  

Let’s assume that your investments are distributed equally among these ETFs. Here’s what your top 10 holdings would look like:  

• Apple Inc. (AAPL): 7.42% 
• Microsoft Corporation (MSFT): 6.39% 
• NVIDIA Corporation (NVDA): 6.09% 
• Amazon.com Inc. (AMZN): 4.31% 
• Meta Platforms Inc. Class A (META): 3.04% 
• Costco Wholesale Corporation (COST): 2.80% 
• Broadroom Inc. (AVGO): 2.60% 
• Alphabet Inc. Class A (GOOGL): 2.26% 
• Alphabet Inc. Class C (GOOG): 2.01% 
• Berkshire Hathaway Inc. Class B (BRK.B): 1.42% 

Based on these numbers, your top 10 holdings make up 38.34 percent of your overall portfolio, even if you might have thought that you’re diversifying by holding three ETFs.  

The key takeaway here is to never assume that you have a highly diversified portfolio just because you hold different ETFs. If an ETF overlap isn’t a part of your investment strategy, it pays to do a little research to ensure you’re spreading your risk.   

How does ETF overlap impact your portfolio? 

Many investors find ETFs an attractive investment option because of the diversification they provide. A diversified portfolio lessens the impact of market volatility and puts you in a position to reap higher returns.  

Too much ETF overlap, however, can negate some of these benefits. Here’s how overlapping holdings can affect your investment portfolio. 

Reduced diversification 

The biggest impact of overlapping ETFs is that it reduces the diversification you’re aiming for with your investments. When this happens, you end up more invested in a handful of similar securities than you might have preferred. If these investments perform poorly, they could have a larger effect on your portfolio than expected. 

Increased risk 

Overreliance on a few companies increases the risk of your portfolio being negatively affected by market downturns.  

Higher costs 

With a fund overlap, you’re essentially paying management fees for the same investments. This can drive up your overall investment costs. 

Tax implications 

If you discover an unintended overlap and decide to sell an ETF, this may trigger capital gains taxes, especially if your investment has appreciated significantly. These taxes can be substantial depending on the holding period and your tax bracket.  

Potential higher returns 

ETF overlap, however, isn’t all bad. If done correctly as part of your investment strategy, it can create opportunities for higher returns.   

If you’re just starting your investment journey and you want to learn more about the different strategies to boost your portfolio, this guide on how to start investing can prove useful.  

How much ETF overlap is acceptable? 

There is no hard and fast rule on how much ETF overlap is acceptable. The InvestmentNews research team found varying recommendations from industry experts, but the common suggestion is the lower, the better. A lower overlap means your portfolio is more diversified. This helps reduce risk and potentially increase long-term returns.  

Still, if you want to put a number, there are experts who suggest between 10 percent and 20 percent, some say below 33 percent, while others recommend not more than 50 percent. What’s important is that the amount of ETF overlap you allow fits your overall investment strategy.  

If you’re looking for an investment strategy that works, this beginner’s guide to smart investing might help.  

Best tools for analyzing ETF overlap 

If you own multiple ETFs and want to know which of these hold similar assets, your best bet would be to use an ETF overlap tool. These platforms boast features that allow you to identify and analyze holdings, so you can avoid unnecessary overlaps and make informed investment decisions.   

You can find several ETF overlap and analysis tools online, but these are our top five picks based on features and functions. The list is arranged alphabetically. 

1. ETF.com 

Nasdaq-owned ETF.com is a financial website that provides news and analysis to ETF investors. It also has a range of tools to help investors make informed decisions.  

For identifying fund overlaps, you can use the site’s ETF Comparison Tool. This lets you compare two or more ETFs at once. It provides data on key metrics, including holdings, performance, and cost. The downside is that, unlike the other ETF overlap tools in our list, you will need to subscribe to gain access.   

2. ETF Database  

ETF Database provides a range of tools and resources to compare, screen, and analyze ETFs. Some features that can help you manage fund overlap include: 

• Head-to-Head ETF Comparison Tool: This provides a side-by-side comparison of two ETFs, including holdings, cost, and various performance metrics 

• ETF Screener: This search tool uses a range of filters – including sector, asset class, region, and historical performance – to help you find a suitable ETF for your portfolio with ease 

• ETF Stock Exposure Tool: This helps you identify ETFs with significant holdings in a specific stock 

• ETF Issuer Fund Flows: This ranks ETF issuers based on various industry metrics 

3. ETF Insider 

ETF Insider has a portfolio analytics platform that allows you to identify overlaps and correlations between holdings in ETFs and mutual funds. Its Overlap and Correlation Analysis feature gives insight into how diversified your portfolio is and helps you determine potential overlaps.  

The InvestmentNews research team used this tool to compile the figures above. 

4. ETF Research Center 

ETF Research Center is a platform developed by AltaVista Research that provides tools and resources to help you screen, evaluate, and manage your portfolio. These include: 

• Fund Overlap: This helps you identify ETF overlaps and by how much, complete with charts and graphs 

• Fund Finder: This lets you screen and evaluate ETFs easily based on different investment criteria 

• Portfolio Builder: This allows you to create, test, and track ETF portfolios by comparing them to industry benchmarks 

5. Vanguard ETF Comparison Tool 

Investment management firm Vanguard offers a tool that allows you to compare up to five mutual funds or ETFs. You can access detailed overview of various funds, including historical performance, costs, holdings, and fund management.  

Top tips on how to manage ETF overlap 

When searching for new ETFs to invest in, your goal must be to choose those that complement the ones in your portfolio rather than duplicating them. This is one of the most effective ways to minimize overlap. Here are some other practical tips that you can consider: 

Review your portfolio  

It’s best practice to review your portfolio regularly and adjust your holdings as needed, so you can maintain diversification. Market movements can change the weighting of holdings in some ETFs, which makes it important for you to keep in step.  

Diversify by asset class 

Another way to reduce ETF overlap is to spread your investment across different asset classes. If you already own a stock-based ETF, you could consider adding a bond ETF. This is because bonds and shares don’t usually overlap. 

You can also invest in real estate investment trusts (REITs). Apart from helping minimize overlap further, this allows you to gain exposure to the property market.  

Invest in broad-market ETFs 

This type of ETF covers a wide range of companies across various sectors. An example is an ETF that tracks the S&P 500, which gives you exposure to hundreds of companies in different industries. This may also lessen the need for you to own several ETFs, minimizing the risk of overlap.  

Use tools to manage overlap 

Tools and resources for monitoring ETFs are easily accessible online. Many of these tools, like the ones listed above, come with features that allow you to compare and analyze holdings and other key metrics. By using these platforms, you can get insights into your portfolio’s concentration.  

Bear in mind that these tips are just general ideas. If you want personalized advice, you should consult an experienced financial advisor. Looking for one? Visit our Best in Wealth Special Reports page. 

Our special reports feature professionals and companies that are considered reliable and respected market leaders. By partnering with them, you can be sure that you’re guided properly in every step of your investment journey.