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Think Your ETF Portfolio is Diversified?

January 9, 2020 By Jeremy Jones, CFA

If you are buying ETFs because you hope to build a more diversified portfolio than you believe you can get by purchasing individual stocks, this chart is for you. The chart below from Bespoke dispels the myth that ETFs always provide adequate diversification.

The chart shows the weighting of the top two holdings in each S&P 500 sector. Like many ETFs, the S&P 500 sector ETFs are market-capitalization-weighted.

As you can see, the top two stocks are driving the ship in most sectors. In the Communications Services, Energy, and Technology sectors, the top two stocks account for about 40% of each ETF.

Source: Bespoke

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Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
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