SPY, QQQ and a Global Fund: How ETF Overlap Can Increase Your Costs
Buying several ETFs can create the feeling that you have built a diversified portfolio. But two questions fund names do not answer: how much of your portfolio is invested in the same companies, and how much are you paying for that exposure?
When three funds share the same winners
You might own SPY for exposure to the US stock market, QQQ for technology and growth, and a global equity fund for international diversification. Three funds, three different investment strategies and three different tickers.
This is where ETF overlap and portfolio costs become important.
SPY, QQQ and a global equity fund can all give you exposure to many of the same mega cap stocks. Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta and Broadcom can appear across multiple funds at the same time.
Once you look through the ETFs and combine their underlying holdings, what appeared to be three different investments can start to look much more like one concentrated portfolio of US mega cap companies.
And because each fund has its own ongoing charges figure, or OCF, you can also end up paying multiple layers of fund costs to build exposure that could potentially have been constructed more efficiently.
That does not automatically make the portfolio bad. It simply means you need to look at both sides of the equation: what you own and what it costs.
What is ETF overlap?
ETF overlap is the extent to which two or more funds own the same underlying investments.
It is easy to miss because investors usually see the fund rather than the individual stocks inside it.
You might think of SPY as "US stocks", QQQ as "Nasdaq and technology" and a global ETF as "international stocks". But the companies held by those funds do not respect those labels.
A company such as Nvidia can be held by all three. The same applies to Apple and Microsoft. They are major constituents of the S&P 500, major holdings within the Nasdaq 100 and, because the world's largest companies are heavily represented in global developed-market indices, can also make up significant positions in a global equity fund.
This is why looking only at the number of ETFs in your portfolio can be misleading.
Three ETFs do not necessarily mean three independent sources of investment exposure.
The same principle applies to fees.
Three ETFs also mean three separate OCFs. If those funds are providing genuinely different exposure, that may be perfectly reasonable. But if they are repeatedly giving you exposure to the same companies, it is worth asking whether the portfolio has been constructed as efficiently as it could be.
SPY vs QQQ overlap is bigger than the fund names suggest
SPY and QQQ are often used for different purposes.
SPY gives investors broad exposure to large US companies through the S&P 500. QQQ tracks the Nasdaq 100 and has a much stronger concentration in large technology and growth companies.
That distinction is real, but there is still substantial overlap between the two ETFs.
Many of the largest companies in QQQ are also among the largest companies in SPY. Nvidia, Apple and Microsoft are obvious examples.
The difference is mainly in how those companies are weighted and what sits around them.
SPY spreads exposure across roughly 500 companies and across a wider range of sectors. QQQ has a smaller number of holdings and is much more concentrated in technology and growth-oriented businesses.
So adding QQQ to SPY does not simply give you a completely new group of companies.
It increases your exposure to a particular part of the US market that you already own through SPY.
That can be exactly what you want. If your investment thesis is that large technology and growth companies deserve a higher weighting in your portfolio, QQQ can be used as a deliberate tilt.
The important word is deliberate.
The same question applies to the cost of that tilt. If you are paying a higher OCF for QQQ, you should understand exactly what additional exposure that higher cost is buying you.
Adding a global ETF does not necessarily solve the problem
The third part of the portfolio is where things can become even more confusing.
An investor may add a global equity ETF because they want to diversify away from the US. On the surface, that sounds sensible.
But many global market-cap-weighted funds already have a large allocation to US equities. The world's biggest companies are overwhelmingly represented in the US, so global indices naturally give them substantial weights.
That means a portfolio containing SPY, QQQ and a global fund may still have a very large overall exposure to the United States.
The global fund can add companies from Europe, Japan, Canada and other markets, but it can also add another layer of exposure to the same US mega caps you already own through SPY and QQQ.
This is one of the most common misunderstandings about ETF diversification.
Adding a global fund to a US-heavy portfolio does not automatically make the portfolio globally diversified.
You need to look at the combined geographic exposure of the entire portfolio.
You should also look at the combined cost.
A global ETF with a relatively low OCF may look inexpensive on its own. But if it sits alongside several other funds that are already providing much of the same US mega cap exposure, the overall portfolio may have a higher blended OCF than necessary.
What is a blended OCF?
The OCF, or ongoing charges figure, is the annual operating cost of a fund expressed as a percentage of the assets invested.
For example, if a fund has an OCF of 0.20%, an investor with £10,000 invested would pay roughly £20 a year in ongoing fund charges, before considering other costs such as trading costs, taxes or tracking differences.
When you own several funds, looking at each OCF individually is not enough.
What matters is the blended OCF of the portfolio.
Your blended OCF is effectively the weighted average of the OCFs of the funds you own.
Imagine you have 50% of your portfolio in a fund with a 0.10% OCF, 30% in a fund with a 0.20% OCF and 20% in a fund with a 0.50% OCF.
Your blended OCF would be:
(50% × 0.10%) + (30% × 0.20%) + (20% × 0.50%) = 0.21%
That 0.21% is more useful for understanding the cost of your portfolio than looking at the OCF of each fund separately.
And this is where overlapping ETFs can become interesting.
A portfolio can sometimes be constructed with similar underlying exposure but a lower blended OCF by using fewer, broader or more efficiently priced funds.
Overlap can make a portfolio more expensive than necessary
The issue is not simply that owning three funds means paying three fees.
The more important question is whether those fees are buying you something different.
If one fund gives you broad US exposure, another gives you a technology tilt and a third global fund gives you international exposure plus another large allocation to US mega caps, there may be a more efficient way to achieve the same overall portfolio objective.
You might decide that the additional technology exposure from QQQ is worth paying for. That is a legitimate choice.
But you might also discover that your existing global and US funds already give you a sufficiently large technology allocation. In that case, QQQ may be adding relatively little diversification while increasing your blended OCF and concentration.
This is why ETF overlap analysis and portfolio cost analysis should be done together.
The cheapest portfolio is not automatically the best portfolio. But neither is there much value in paying an additional OCF for exposure that does not meaningfully change your portfolio.
The real issue is your underlying holdings
Imagine an investor owns three ETFs.
SPY makes up 40% of the portfolio.
QQQ makes up another 30%.
A global equity ETF accounts for the remaining 30%.
At the fund level, that looks reasonably diversified.
But now imagine looking through those funds and discovering that Nvidia, Apple, Microsoft, Amazon and Alphabet are among the largest holdings in all three.
The investor does not have three separate exposures to those companies in the way they might intuitively think.
They have one combined exposure, spread across three funds.
They also have three OCFs contributing to the total cost of the portfolio.
This is why look-through analysis is so useful.
Instead of treating each ETF as a separate box, look through each fund to the individual securities inside it. Then calculate the combined portfolio weight of every underlying company.
At the same time, calculate the weighted average OCF across the funds.
That gives you two important pieces of information:
What do I actually own?
What am I actually paying?
Those answers can look very different from the list of fund tickers on your brokerage account.
ETF overlap can create hidden portfolio concentration
The biggest problem with overlapping ETFs is not that owning the same company twice is inherently wrong.
It is that the duplication can make your portfolio more concentrated than you realise.
Suppose you own several funds that all have Nvidia as a major holding. You might think you have diversified across several investment strategies, but a large move in Nvidia can still have a meaningful effect on your overall portfolio.
The same applies at the sector level.
If SPY gives you broad US market exposure, QQQ adds a significant technology and growth tilt, and your global fund also owns the largest US technology companies, your technology exposure may be much higher than you expected.
The same thing can happen geographically.
A portfolio can contain several funds and still be heavily exposed to the United States.
This is why a portfolio pie chart showing "SPY 40%, QQQ 30%, Global ETF 30%" is not enough to understand your actual risk.
The more useful question is:
What percentage of my total portfolio ultimately depends on the same companies, sectors and countries?
And alongside that:
What is the blended OCF I am paying to maintain those exposures?
How to check ETF overlap and portfolio costs
You do not need to start by asking whether you should sell anything.
First, find out what you actually own.
Take every ETF in your portfolio and look at its underlying holdings. Then combine those holdings into a single portfolio view.
Start with the top 10 stocks.
How much Nvidia do you own after combining every fund?
How much Apple?
How much Microsoft?
How much Amazon, Alphabet, Meta and Broadcom?
Then do the same thing for sectors and countries.
What percentage of your portfolio is invested in the US?
What percentage is invested in technology?
How much is invested outside the US?
Finally, look at the OCF of every fund and calculate your blended OCF.
You may discover that two funds with very different names are giving you a surprisingly similar portfolio of companies.
You may also discover that a relatively small allocation to an expensive thematic or technology ETF has a noticeable effect on your overall portfolio costs.
This process is often called look-through portfolio analysis, fund overlap analysis or ETF overlap analysis, and it can reveal concentrations and costs that are almost impossible to see from the fund names alone.
Can you construct the same portfolio more efficiently?
This is perhaps the most useful question to ask.
You do not necessarily need to simplify your portfolio just because funds overlap.
Instead, ask whether you could achieve the same investment objective with a more efficient combination of funds.
For example, perhaps you want a specific US allocation alongside exposure to markets outside the US.
You could use a broad US fund and an ex-US fund, allowing you to control the regional weights directly.
Or perhaps you want a global core portfolio with a deliberate technology tilt. In that case, you can calculate the size of the technology allocation you actually want and choose the most appropriate fund to provide it.
The important thing is to compare the resulting portfolio rather than comparing individual funds in isolation.
Two portfolio constructions can have similar US exposure, similar technology exposure and similar underlying holdings while having different blended OCFs.
If the investment outcomes are likely to be broadly similar, the lower-cost construction may be worth considering.
This is particularly relevant for long term investors because even relatively small differences in annual costs can compound over decades.
Four questions to ask before buying another ETF
Before adding a new ETF, ask yourself what it is actually adding to the portfolio.
Is it giving you exposure to a new asset class?
Is it adding a new geographic region?
Is it introducing companies or sectors that you currently have little exposure to?
Or is it simply increasing your allocation to stocks you already own?
Then ask one more question:
What will this do to my blended OCF?
That last question is particularly important with technology ETFs, Nasdaq ETFs and thematic funds.
A new ETF can feel like diversification because it has a different name and investment objective. But if its largest holdings are already among the largest positions in your existing funds, the portfolio may be becoming more concentrated rather than more diversified.
And if the new fund has a higher OCF, you may also be increasing your portfolio's ongoing costs without adding much genuinely new exposure.
A simpler portfolio can sometimes be a more efficient portfolio
Once you understand your ETF overlap, you may find that you do not need to make dramatic changes.
Sometimes the answer is simply to stop adding funds that duplicate existing exposure.
For some investors, one broad global equity fund may be enough. The trade-off is accepting the geographic and sector weights built into that index.
Another option is to separate your portfolio into a US sleeve and an ex-US sleeve. This gives you more control over your US allocation and makes it easier to decide exactly how much additional exposure you want to US technology and growth stocks.
And if you want a technology tilt, you can still have one.
The difference is that you can decide how large that tilt should be, how much additional concentration it creates and how much it increases your blended OCF.
The objective is not to own the fewest possible ETFs.
The objective is to build the exposure you want as efficiently as possible.
That means considering diversification, concentration, fees and portfolio construction together.
Use look-through analysis to see what your portfolio really costs
This is where tools such as DiversiFIRE's Portfolio X-Ray can make the process easier.
Instead of analysing each fund independently, look at the portfolio as a whole. Portfolio X-Ray is designed to surface underlying stock exposure, geographic concentration, sector exposure and duplicate holdings so you can see where your portfolio risk is really coming from.
It can also help you understand the cost of the portfolio by looking at the OCF of the funds you hold and the resulting blended OCF.
That gives you a more complete picture.
You can see not only whether Nvidia, Apple or Microsoft appears across several funds, but also whether you are paying multiple fund charges to maintain overlapping exposure.
Once you know where the overlap is, you can use What-If analysis to test a different allocation before making any trades.
Perhaps you can reduce the number of funds.
Perhaps you can replace several overlapping sleeves with a simpler combination.
Perhaps you discover that the existing structure is already efficient and the overlap is intentional.
All three are useful outcomes.
The goal is not to tell you that SPY is better than QQQ, or that you should never own a global fund.
The goal is to answer two much more useful questions:
Does my portfolio contain the exposures I think I bought?
And am I paying a sensible cost for those exposures?
Because a portfolio with three ETFs can be genuinely diversified.
It can also be three different wrappers around the same handful of stocks, each charging its own OCF.
The only way to know the difference is to look through the funds, calculate the combined exposure and understand your blended OCF.
Good portfolio construction is not about owning more funds. It is about getting the exposure you want, at an appropriate level of concentration and cost.
Frequently asked questions
What is ETF overlap?
ETF overlap is how much two or more funds invest in the same underlying companies. SPY, QQQ and many global equity funds often share large weights in the same US mega-cap names, even though the fund labels suggest different strategies.
What is a blended OCF?
Blended OCF is the weighted average ongoing charges figure across all the funds in your portfolio. It shows what you are really paying in annual fund costs, which matters when several ETFs charge separate fees for overlapping exposure.
How much overlap is there between SPY and QQQ?
There is substantial overlap because many of the largest Nasdaq 100 holdings are also among the largest S&P 500 weights. QQQ adds concentration and a technology tilt on top of exposure you may already hold through SPY.
Can a global ETF overlap with US funds?
Yes. Global market-cap-weighted indices include large US weights and the same mega-cap companies that dominate SPY and QQQ, so a global fund can add another layer of exposure to names you already own.
All insights · DiversiFIRE home