Understanding how Equily detects shared holdings between your ETFs and calculates their impact on your EPR diversification factor.
ETF overlap occurs when multiple ETFs in your portfolio hold the same underlying stocks. Even though you may hold different funds with different names, they might invest in many of the same companies.
Example: A total US market ETF (like VTI) and an S&P 500 ETF (like VOO) both hold Apple, Microsoft, Amazon, and other large US companies. The S&P 500 represents approximately 80% of the total US market by capitalization, resulting in significant overlap.
Equily's analysis examines the actual holdings of each ETF in your portfolio to calculate how much of your investment is in stocks held by multiple funds.
When multiple ETFs hold the same stocks, your portfolio may be less diversified than it appears. Understanding overlap helps you see your effective diversification rather than just counting the number of funds you hold.
Effective vs Nominal Diversification
Holding 5 ETFs doesn't mean you have 5x the diversification. If those ETFs share significant holdings, your effective exposure to unique securities may be much lower than expected.
Correlation Effect
Overlapping holdings tend to move together. When two ETFs hold the same stocks, gains and losses in those stocks affect both positions simultaneously. This correlation is factored into the EPR diversification assessment.
Concentration Amplification
If Apple represents 7% of ETF1 and 5% of ETF2, and you hold both, your combined Apple exposure is higher than either fund alone would suggest. This can amplify single-stock concentration.
EPR calculates your effective diversification by analysing actual holdings overlap, providing a more accurate picture than simply counting funds.
For each pair of ETFs in your portfolio, Equily:
Retrieves the underlying holdings of each ETF from financial data providers.
Compares holdings across ETFs to find stocks that appear in both funds.
For each shared holding, calculates the overlap contribution using the minimum weight approach. If Apple is 7% of ETF1 and 5% of ETF2, the overlap contribution is 5%.
Multiplies the overlap by your allocation to each fund to determine the portfolio-level impact.
The portfolio impact represents what percentage of your total portfolio is invested in stocks held by both funds:
Portfolio Impact = (Allocation to ETF1 + Allocation to ETF2) × Overlap %
Example:
ETF overlap affects the Diversification factor in your EPR score. Here's how the impact levels work:
EPR calculates your effective diversification - accounting for overlap between funds rather than just counting the number of ETFs you hold.
Some fund combinations have structural overlap due to how they're constructed:
Total Market + Large Cap
Total market ETFs (VTI, ITOT) contain all the stocks in large cap ETFs (VOO, SPY). The S&P 500 represents approximately 80% of the total US market by capitalization.
Global + Regional
Global ETFs (VT, VWRL) contain stocks from regional ETFs (VTI, VEA, VWO). The overlap varies based on regional allocation within the global fund.
Sector + Broad Market
Sector ETFs (XLK, VGT) hold stocks that are also in broad market ETFs. The overlap depends on the sector's weight in the broader index.