ETF Overlap: How to Tell If Your Funds Are Buying the Same Stocks

Two ETFs, One Portfolio

Andrea spent six months reading personal finance forums and comparing funds to build his ETF portfolio. The funds he chose feel well diversified: an MSCI World, an S&P 500, an information technology sector ETF, a Nasdaq 100, a global small-cap fund, and an aggregate bond ETF. Six ETFs, six different ideas. Or so he believes.

Let us look at the first five. MSCI World has roughly 70% exposure to the United States, dominated by the top ten American companies: Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet. The S&P 500 tracks the same 500 American companies, with the same top ten. The technology sector ETF holds Apple, Microsoft, and Nvidia in top positions, often with weights similar to the Nasdaq 100, which tracks the top hundred non-financial companies listed on the Nasdaq: once again Apple, Microsoft, Nvidia, Amazon, Meta at the top. Global small caps are the only component that does not replicate US mega-caps.

The net result: Andrea owns six ETFs, but five of them buy the same ten American companies in different proportions. He pays six different TERs, believes he is diversifying, and instead is concentrating risk in the same large-cap growth stocks that have driven the market over the past five years. If those ten companies corrected by 20%, his portfolio would feel it almost as if everything were in a single index.

This is ETF overlap: the share of two different funds made up of the same underlying stocks. It is one of the most widespread hidden costs in retail investor portfolios.

What ETF Overlap Is, Precisely

Two ETFs overlap when they hold the same companies in their portfolios. Overlap is measured as a percentage of the smaller portfolio: if ETF A and ETF B share stocks worth 40% of B’s assets, the overlap is 40%.

The formula for calculating it:

$$O_{A,B} = \frac{\sum_{i} \min(w_{i,A}, w_{i,B})}{\min(\sum_{i} w_{i,A}, \sum_{i} w_{i,B})}$$

Where $w_{i,A}$ and $w_{i,B}$ are the weights of stock $i$ in the two ETFs. In practice: take every stock held by both funds, sum the smaller weight for each, and divide by the total of the smaller fund.

Not all overlap is a problem. Two global equity ETFs will always have significant overlap: MSCI World and FTSE All-World share almost all constituents, with marginal differences on emerging markets inclusion. The point is not to eliminate overlap, but to recognise when it is unintentional and costly.

Overlap becomes a problem when:

• two ETFs with different names and stated objectives are in fact very similar in content;
• you are paying two TERs for the same exposure;
• you believe you are diversified but are more concentrated than you think.

The Classic Case: MSCI World Plus S&P 500

The most common combination in European portfolios, especially among beginners, is MSCI World plus S&P 500. At first glance it looks sensible: the first covers developed global markets, the second concentrates on the United States, which has outperformed over the past fifteen years. The investor thinks they are capturing the world while adding a bit more America, as a conscious choice.

The problem lies in the index composition.

MSCI World is a market-cap-weighted index. The United States represents about 65-70% of the index. This means when you buy a share of MSCI World, roughly 70 cents of every dollar go into American companies.

The S&P 500 is 100% American companies. The top ten (Apple, Microsoft, Nvidia, Amazon, Meta Platforms, Alphabet class A, Alphabet class C, Berkshire Hathaway, Broadcom, Eli Lilly) represent about 35% of the index value. In MSCI World, those same ten companies represent about 23% of the index.

If your portfolio is 50% MSCI World and 50% S&P 500, your effective US exposure is roughly 85%, not 50%. And the concentration in the top ten is about 29%. You built what you thought was geographic and sector diversification, and instead nearly doubled the bet on the same market.

The following table shows estimated overlap between the most common ETF combinations in European portfolios:

The Hidden Cost of Duplicated TERs

Overlap is not only a risk concentration problem. It is also a recurring cost that compounds every year.

Imagine you have two ETFs with 70% overlap. On every dollar invested in both, you are paying the TER of both ETFs for the same underlying exposure. It is like paying twice for the same train ticket.

Over long horizons, this extra cost amplifies through compounding. A numeric example makes the scale clear:

An investor puts $10,000 equally split between an MSCI World (TER 0.20%) and an S&P 500 (TER 0.07%). The overlap is about 65%, meaning $3,250 of the portfolio is exposed to the same companies twice.

The annual cost of the overlap on that $3,250 is:

$$C_{\text{overlap}} = 3{,}250 \times (0.0020 + 0.0007) \approx 8.78 \text{ dollars per year}$$

Over twenty years at a 7% annual return, those $8.78 of extra annual cost, removed from compounding, become roughly $360 assuming steady contributions. It is not a retirement-plan-changing sum, but it is an avoidable cost for anyone building a portfolio deliberately.

The real point is that the cost of overlap does not appear on any statement line. It is not an explicit fee. It is an efficiency loss embedded in the portfolio structure, invisible until you look inside each ETF.

When Overlap Is Intentional and Acceptable

Not all overlap is a mistake to fix. There are cases where a certain degree of overlap is the result of a deliberate, sensible choice.

Conscious geographic or sector tilt. If you have decided to overweight the United States relative to market weight, adding an S&P 500 to an MSCI World has a rationale. The overlap is there, but it is not accidental: you are deliberately increasing exposure to a specific market. The key is knowing exactly how much you are increasing that exposure, and having done so with analysis, not by chance.

Core-satellite strategy. In a portfolio built on this logic, a global ETF serves as the central core, and one or more sector or thematic ETFs serve as satellites, in contained proportions (typically 5-10% each). There is some overlap between the core and the satellites, but it is limited and proportional to the objective.

Small replication differences. Two ETFs tracking the same index (e.g. MSCI World by iShares and Xtrackers) have near-100% overlap, but one may use physical replication and the other synthetic, with different tax implications depending on your jurisdiction. In this case the overlap is total and the choice between the two is about instrument structure, not diversification.

The difference between good overlap and bad overlap almost always comes down to one question: did you know about it before investing, or did you discover it afterwards?

How to Measure Overlap in Practice

You do not need specialist software to check whether your ETFs overlap. Three steps will do it, all with free tools.

Step 1: compare the top ten holdings. Every ETF publishes a monthly factsheet with the top ten holdings. If four or five names appear identically at the top of two different ETFs, the overlap is significant. This is not a precise measurement, but it is an immediate indicator.

Step 2: check geographic and sector breakdowns. Two ETFs with the same geographic exposure (e.g. 65-70% United States) and the same sector concentration (e.g. 25-30% technology) are highly likely to overlap, even if the index names differ. The data is available on the issuer’s website or on platforms like justETF and Morningstar.

Step 3: use overlap analysis tools. Free online tools exist that calculate overlap between two ETFs by entering their tickers. They are not perfect because they work with aggregated data, but they provide a reasonable estimate. For a more granular view, import your portfolio into Wallible to see concentration by issuer, sector, and individual holding across all combined positions.

The rule of thumb for a well-built portfolio: with 2-4 non-overlapping ETFs you can achieve full diversification. A global equity ETF, an aggregate bond ETF, optionally an emerging markets ETF (which MSCI World excludes), and at most one small satellite allocation on a specific theme. Beyond four ETFs, the probability of unintentional overlap rises, while the benefits of additional diversification decline rapidly.

The Diversification Paradox: More ETFs Does Not Mean Less Risk

There is an intuitive but wrong idea: the more ETFs I own, the more diversified I am. Portfolio composition data shows the opposite.

A 2024 study published in Financial Planning Review analysed European retail investor portfolios, finding that the average number of ETFs per portfolio was 4.7, but that the marginal diversification benefit (measured as volatility reduction) was exhausted after the third ETF. The fourth, fifth, and sixth ETFs added exposures already covered, reducing overall efficiency.

The reason is mathematical, not financial. Portfolio risk is determined by the covariance between its components. Adding an ETF that has a 90% correlation with one already present reduces overall volatility by a negligible amount, but adds a TER you pay every year.

The principle works both ways: 2-3 well-chosen ETFs with no unintentional overlap beat 6 ETFs with high overlap, both on cost and on strategy clarity. Simplicity is not a surrender of sophistication: it is the result of doing the analysis before investing, rather than after.

How Wallible Helps You See Overlap

Wallible’s portfolio composition view aggregates all positions (ETFs, individual stocks, bonds) and shows the resulting concentration by issuer, sector, and country across the entire combined portfolio. This is the point where overlap stops being a hypothesis and becomes a number.

Instead of comparing two ETFs at a time, Wallible takes the whole portfolio and calculates each company’s share of the total invested. If Apple represents 5.3% of your MSCI World, 7.1% of your S&P 500, and 12.4% of your technology ETF, Wallible sums the three positions and tells you Apple weighs 6.8% of your total portfolio. You do not need to do the cross-calculation yourself: you see the aggregated result.

This is useful not only for avoiding unintentional concentrations, but also for checking that your deliberate choices (a tilt, a geographic overweight) are in the proportion you intended, and have not grown beyond due to market movements.

Next Step

ETF overlap is a problem you can solve in thirty minutes of analysis, and whose benefits (lower costs, better diversification, a clearer portfolio) last for your entire investment horizon.

With Wallible you can:

• Import your portfolio and see the aggregated concentration by issuer, sector, and country, spotting unintentional overlap at a glance
• Read our article on lazy portfolios to learn how to build a portfolio with 2-4 ETFs and no overlap
• Deepen your understanding of asset class correlation to distinguish overlap from statistically normal market correlation
• Check the metrics guide to monitor portfolio concentration and volatility over time