Own Several ETFs? Your TFSA Could Still Depend on the Same Stocks

Owning several ETFs can still leave your TFSA concentrated if the same mega-cap stocks dominate each fund.

Key Points
  • VFV, VUN, and VEQT all hold Nvidia, Apple, and Microsoft among their largest positions.
  • An equal split across the three would put roughly 16% into those three companies alone.
  • ETF diversification should be measured by underlying exposure, not the number of tickers you own.

Three exchange-traded funds (ETF) can look like diversification. Yet at the same time can also be three different ways of buying Nvidia.

That’s the problem with judging a Tax-Free Savings Account (TFSA) by the number of ticker symbols it contains. An investor might own a global ETF, an S&P 500 ETF, and a total U.S. market ETF and feel beautifully diversified.

Look underneath, and the same handful of companies may be doing much of the work. That doesn’t make the ETFs bad; it means you should know what each new fund actually adds.

ETFs can contain investments such as stocks

Source: Getty Images

Look underneath

Consider three popular types of ETFs. Vanguard All-Equity ETF Portfolio (TSX: VEQT) owns thousands of stocks across Canada, the United States, developed international markets, and emerging markets. Vanguard S&P 500 Index ETF (TSX: VFV) owns large U.S. companies. Vanguard U.S. Total Market Index ETF (TSX: VUN) goes broader, adding mid-, small-, and micro-cap U.S. companies.

Those descriptions sound different, and granted they are. But they also share many of the largest holdings. Nvidia, Apple, Microsoft, Amazon, Alphabet, Broadcom, Meta Platforms, and Tesla appear prominently across the U.S. portions of these funds. So understanding how ETFs work means looking through the wrapper instead of assuming each fund represents a completely new investment.

Same stocks

The concentration becomes clearer with the three biggest names. As of August 31, Nvidia represented about 8.1% of VFV and 6.8% of VUN. Apple accounted for roughly 7% and 6.2%, respectively. Microsoft added another 5.7% and 5%.

Even VEQT, despite its global reach, had about 3.1% in Nvidia, 2.8% in Apple, and 2.3% in Microsoft. Imagine splitting a portfolio equally across VEQT, VFV, and VUN.

STOCKVEQT WEIGHTVFV WEIGHTVUN WEIGHTAPPROX. EQUAL WEIGHT IN PORTFOLIO
Nvidia3.1%8.1%6.8%6.0%
Apple2.8%7.0%6.2%5.4%
Microsoft2.3%5.7%5.0%4.3%
TOTAL15.7%

More than 15% of the whole portfolio would depend on three companies. That may be perfectly acceptable for some, but should be intentional.

More isn’t always more

VFV and VUN provide a good example. VFV focuses on approximately 500 large U.S. businesses. VUN owns the wider U.S. market, so it already contains those same large companies plus smaller ones. Holding both doesn’t suddenly double diversification. It simply increases the amount allocated to U.S. stocks, particularly the mega-cap companies that dominate both indexes.

Adding VEQT creates the same issue from another direction. VEQT already has substantial U.S. exposure alongside Canada and international markets. An investor who owns VEQT and then keeps adding VFV may think they’re adding a new investment. They’re mainly increasing the U.S. allocation already inside VEQT.

So while VDV is a strong, low-cost U.S. core holding, it isn’t a complete global portfolio. Its market-cap weighting can also create more concentration after the largest companies have strong runs.

TFSA space matters

Overlap deserves extra attention inside a TFSA because contribution room is limited. I’d want every holding to have a clear job. Maybe VEQT is the global core. Maybe VFV is added because the investor deliberately wants more U.S. exposure. Maybe VUN replaces VFV because broader U.S. coverage is preferred.

Any of those approaches can make sense. Owning all three simply because each ETF looks diversified on its own is different. There are other overlaps to check too. Canadian dividend ETFs may all lean heavily toward the same banks and pipelines. Technology ETFs can duplicate stocks already sitting near the top of an S&P 500 fund.

Bottom line

I don’t count ETFs when deciding whether a portfolio is diversified; I count exposures. If three funds all put their largest dollars into Nvidia, Apple, and Microsoft, owning three tickers doesn’t change that.

Before adding another ETF to a TFSA, I’d ask one question: “What does this fund give me that I don’t already own?”

If the answer is “more of the same stocks,” at least make sure that’s exactly what you wanted.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

man shops at grocery store
Dividend Stocks

Choice Properties Pays Monthly: Does the Yield Compensate for Higher Rates?

Choice’s yield deserves a closer look at cash after property spending and financing costs.

Read more »

A meter measures energy use.
Energy Stocks

Canadian Utilities vs. Hydro One: Which Dividend Stock Would I Hold for 15 Years?

A proposed merger changes the Canadian Utilities comparison, while Hydro One still requires price discipline.

Read more »

pig shows concept of sustainable investing
Stocks for Beginners

How I’d Turn Quarterly Bank Dividends Into a Monthly Paycheque

Quarterly bank dividends can fund regular monthly transfers without choosing stocks for payment dates.

Read more »

man studies at computer
Dividend Stocks

Here Are The 3 Canadian Stocks I’d Tell a New Investor to Buy ASAP

Discover strategies for investing in stocks that can help you thrive in a market filled with volatility and uncertainty.

Read more »

monthly calendar with clock
Dividend Stocks

The TFSA Strategy I’d Use to Generate $600 in Monthly Tax-Free Income

A smarter TFSA approach is to prioritize sustainable total returns and diversification rather than chasing an arbitrary monthly income number.

Read more »

Canadian Red maple leaves seamless wallpaper pattern
Stocks for Beginners

The Canadian Stocks I’d Buy With $7,000 Right Now 

Investing in stocks can be rewarding. Examine the current climate for energy and AI stocks following the recent market changes.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution Before 2026 Is Over

Put your $7,000 TFSA contribution to work before 2026 ends. Explore BMO, CN and Constellation Software for income and long-term…

Read more »

man calculates finances
Dividend Stocks

How to Structure a $50,000 TFSA for Consistent Monthly Income

Structure a $50,000 TFSA for consistent monthly income with Scotiabank, RioCan and ZWC. Explore an allocation targeting about $200 a…

Read more »