ETF Overlap

ETF overlap measures the portfolio overlap between two ETFs. Mathematically, for each security present in both ETFs, we take the minimum of their respective weightings and sum these minimums. The result, expressed as a percentage, represents the fraction of your investment in the first ETF that is also covered by the second.

How overlap is calculated

For two ETFs A and B, for each security i present in both portfolios:

Overlap contribution(i) = min(weight of i in A, weight of i in B)

Total Overlap = Σ min(wA_i, wB_i) across all common securities i.

A 70% overlap means 70% of your exposure to ETF A is doubly covered by ETF B. Holding both ETFs means ~70% of your capital is duplicated.

Concrete overlap examples

• CW8 (MSCI World) vs SXR8 (S&P 500): overlap ~65-70% — very high
• IWDA (MSCI World) vs VWCE (FTSE All-World): overlap ~85-90% — near identical
• CW8 (MSCI World) vs AEEM (Emerging Markets): overlap <2% — complementary
• CW8 (MSCI World) vs CACC (CAC 40): overlap ~3% — very complementary

When is high overlap a problem?

High overlap is not a problem if both ETFs are deliberately chosen to be similar (e.g. to compare their TER). But if an investor believes they are diversifying by holding CW8 and SXR8 simultaneously, the ~65% overlap demonstrates that 65% of their capital is doubly exposed to the same companies — paying double management fees for the same exposure with no diversification benefit.

Practical rule for portfolio construction

A practical rule: above 60% overlap, holding two ETFs together adds no meaningful diversification — better to pick just one (the one with the lowest TER or best tracking difference). Below 20% overlap, the two ETFs are genuinely complementary and combining them improves portfolio diversification.