How overlapping ETFs concentrate your risk
If you own both QQQ and XLK, you are doubling up on Apple and Microsoft. Both ETFs hold these as their top positions. This overlap increases your concentration risk.
Top-holding concentration across four ETFs
| ETF | Top Holding | Top 10 Weight | Total Holdings |
|---|---|---|---|
| SPY (S&P 500) | Apple ~7% | ~30% | ~500 |
| QQQ (Nasdaq 100) | Apple ~9% | ~50% | ~100 |
| VTI (Total Market) | Apple ~6% | ~25% | ~3,700 |
| XLK (Tech Sector) | Apple ~20% | ~65% | ~65 |
Check an ETF's top-10 concentration
Look up any ETF and examine its top 10 holdings and sector breakdown. What percentage does the top holding represent?
More holdings does not always mean more diversified
Is a 3,000-stock ETF really diversified?
A 'Total US Market' ETF holds 3,000+ stocks but the top 10 positions are 30% of weight. Is this ETF actually diversified?
Check your understanding
Sit with the ideas.
An ETF's top holding is 22% of the fund. What risk does this create?
Why: