Reading time: 5 minutes
Published: June 3, 2025
Modified: June 4, 2025
When building a diversified portfolio, many investors assume they’re getting a broad mix by picking popular ETFs. But without using an ETF Diversification Tool, it’s easy to overlook hidden overlap that can lead to unintended risk.
That’s why we created the Raining Pennies ETF Diversification Tool, a free tool that helps you evaluate how much your ETF holdings truly differ.
Why ETF Overlap Matters
Overlapping ETFs can silently distort your asset allocation. You may think you’re spreading risk, but in reality, you might be doubling down on the same holdings. That means unintended concentration in a few mega-cap stocks and missed opportunities for true diversification.
Understanding this overlap is essential for:
- True diversification and risk reduction
- Cost-efficient portfolio construction
- Strategic rebalancing decisions
What Makes Our ETF Diversification Tool Different?
Many diversification tools online are limited in scope; they typically let you compare just two ETFs at a time, with minimal metrics and limited visibility into how those ETFs relate. Our tool goes further, providing the following features:
- Comparison of up to 5 ETFs at once.
- An instant snapshot of key metrics.
- Optional generation of a comprehensive personalized PDF report emailed to you, which contains:
- Seven metrics in the Diversification Metrics Summary:
- Portfolio Overlap
- Unique Portfolio Exposure
- Unique Holdings
- Top 10 Portfolio Exposure
- Redundancy Index
- Top Holding
- Raining Pennies Diversification Score
- Overlapping holdings for all ETFs in the Overlapping Holdings Table.
- Comparison of the top 15 holdings of each ETF overlap with those of every other ETF, one pair at a time, in the ETF Pairwise Overlap Matrix report.
- Seven metrics in the Diversification Metrics Summary:
All of this is done without requiring a subscription, tracking, and minimal ads. It’s our way of making meaningful financial tools accessible to everyone.
Snapshot Example
Want a quick look before committing your email? Our Snapshot preview gives you an instant overview of your portfolio’s diversification, including a custom score and top holding, right on the page. Then, if you want the full breakdown, just enter your email and we’ll send the full report to your inbox.
The Snapshot example in Figure 1 is based on a 50/50 portfolio split between XLK (Technology Select Sector SPDR Fund) and QQQ (Invesco QQQ Trust Series I). Both ETFs are heavily focused on large-cap tech stocks.
The Diversification Score of 34 out of 100 indicates a high concentration in similar holdings, meaning there’s limited diversification across sectors or stocks. This score reflects not just overlap, but also how heavily your portfolio leans on a few key positions.
The Portfolio Overlap of 63.7% indicates that a majority of your combined holdings appear in both ETFs, diminishing the benefits of holding multiple funds. And with Microsoft (MSFT) showing up as the top holding at 11.6%, it’s clear that a large portion of your portfolio is tied to a single company. If your goal is to spread risk, this preview is a clear signal to reconsider how your investments are allocated.
What’s Under the Hood?
We currently analyze the top 125 ETFs by assets under management (AUM), using the top 15 holdings per ETF. These holdings often represent 30–40% of an ETF’s total assets, giving you a fast, accurate picture of where your portfolios overlap.
If you’re holding S&P 500 index ETFs like VOO, SPY, or IVV in equal proportions, you’ll see an overlap of 98% in the top 15 holdings of each ETF. This indicates that your portfolio is not diversified and potentially subject to higher market volatility.
What About Privacy?
At Raining Pennies, privacy is very important to us. We want you to know that:
- Your ETF selections are processed anonymously and never tied to your email.
- Your email is only used to send your report and, optionally, subscribe to the Raining Pennies newsletter.
- If you opt in to our newsletter, great! You’ll receive educational content (and can unsubscribe anytime).
We don’t track, and we never resell your personal information.
What’s Next?
We’re already exploring additional features for this tool, including:
- Supporting more than 125 ETFs.
- Incorporating deeper holdings (beyond the top 15).
- Allowing comparisons with mutual funds.
- Exporting results to spreadsheet-friendly formats.
- Generating interactive visuals to help you understand your exposure at a glance.
If you have any suggestions for additional improvements, we’d love to hear from you in the comments below. Your feedback will help shape what comes next.
Related Topics on ETFs and Portfolio Diversification
- The Truth About All-Weather Funds: Are They Realistic?
- Mutual Funds Versus ETFs: How to Build a Low-Cost Portfolio
- Master Portfolio Diversification with Asset Allocation