ETF Overlap Analysis: Avoiding Unintended Portfolio Concentration
Exchange-traded funds (ETFs) provide instant diversification, but investors who own multiple ETFs may unknowingly create portfolio concentration by holding the same stocks across different funds.
An ETF Overlap Checker analyzes the underlying holdings of your ETFs to identify duplicate positions and calculate the degree of overlap.
For example, both the S&P 500 ETF (SPY) and a total market ETF (VTI) hold large-cap stocks like Apple, Microsoft, and Amazon, creating significant overlap.
If an investor holds $10,000 in each, they may have over $4,000 effectively invested in just the top 10 tech stocksโfar more concentration than intended.
The tool typically shows overlap percentage, shared holdings, and portfolio weight concentration.
This analysis is crucial for several reasons: it prevents false diversification where you think you own 200 companies but actually have heavy exposure to 20; it helps identify redundant positions that increase expense ratios without adding value; and it reveals sector concentration that could amplify losses during downturns.
The solution is to choose complementary ETFs with minimal overlapโfor instance, pairing a total market fund with an international fund rather than multiple U.S. large-cap funds.
Some acceptable overlap exists when intentionally overweighting sectors, but unintentional duplication undermines diversification.
Modern portfolio construction should analyze overlap quarterly, especially when adding new positions.