Understanding ETF Overlap
ETF overlap occurs when multiple exchange-traded funds in your portfolio hold the same underlying stocks, reducing your actual diversification despite owning multiple funds.
For example, if you own both VOO (Vanguard S&P 500) and VTI (Vanguard Total Market), they share approximately 82% of holdings by weight—the 500 largest companies in VTI are essentially the same as VOO.
This creates "false diversification": you think you're spreading risk across different investments, but you're actually overexposed to the same companies.
The consequences include concentrated risk (if major holdings like Apple, Microsoft, or Amazon decline, all your funds suffer proportionally), reduced benefit from rebalancing (you're essentially selling and buying the same stocks), and inefficient use of capital (paying multiple expense ratios for duplicate exposure).
Overlap happens most commonly with: large-cap and total market funds (VTI and VOO overlap 82%, VTI and VUG overlap 45%), sector funds and broad market funds (VGT technology fund overlaps 65%+ with QQQ Nasdaq-100), and international and global funds (VEA developed markets overlaps significantly with VT total world).
Checking overlap is crucial when building a multi-fund portfolio.
Ideal overlap between funds should be under 30% to maintain meaningful diversification.
Tools like ETF Research Center, ETFrc.com, and Portfolio Visualizer allow you to input multiple ETF tickers and see overlap percentages and shared holdings.
The analysis reveals top overlapping stocks, percentage of shared holdings by weight, and correlation between fund performances.
Understanding overlap helps you build truly diversified portfolios: instead of owning 5 funds with 70%+ overlap, you can select complementary funds covering different market segments, asset classes, and geographies with minimal overlap, achieving actual diversification that reduces portfolio volatility and improves risk-adjusted returns.