Three exchange-traded funds (ETFs) should mean diversification, right? Not necessarily. If each fund owns many of the same companies, your Tax-Free Savings Account (TFSA) may contain three ticker symbols wrapped around one surprisingly large technology bet.
That isn’t automatically a problem. Technology companies have produced tremendous growth, and several deserve meaningful portfolio weights. The danger is believing you own a balanced collection of investments when the same handful of businesses may determine much of your return.
Here’s how the overlap happens
Consider a hypothetical TFSA divided equally among iShares Core Equity ETF Portfolio (TSX: XEQT), iShares Core S&P U.S. Total Market Index ETF (TSX: XUU), and Global X Nasdaq-100 Index Corporate Class ETF (TSX: HXQ).
On the surface, that looks impressively diversified. XEQT recently held approximately 8,300 underlying securities across Canada, the United States, developed international markets, and emerging markets. XUU provided exposure to roughly 2,400 U.S. stocks. HXQ followed 100 large non-financial companies listed on the Nasdaq.
Yet the number of holdings can be misleading. XEQT already allocated approximately 45% of its portfolio to U.S. equities. Adding XUU increases that exposure, while HXQ adds another portfolio dominated by large American growth companies. The result? An equal investment in all three ETFs would place approximately 80% of the TFSA in U.S. equities.
Technology’s weight grows quietly
XUU recently held 34.9% of its portfolio in information technology. HXQ was 58.8% technology, with another 13.4% in communication services and 11.3% in consumer services. That means XUU and HXQ alone would contribute approximately 31% direct technology exposure to the hypothetical TFSA. That calculation doesn’t include a single technology company held through XEQT.
Nor does it fully capture businesses such as Alphabet, Meta Platforms, and Amazon, which may sit outside the official technology sector despite depending heavily on digital advertising, cloud computing, artificial intelligence, and online platforms.
The repeated companies matter as much as the sector labels. Nvidia, Apple, Microsoft, Broadcom, and Meta are substantial holdings within HXQ. Many also rank among the largest positions inside the U.S. market funds held by both XUU and XEQT.
Why the overlap matters
Several of these companies generate enormous profits and hold enviable competitive positions. I wouldn’t avoid them simply because they became large.
However, many respond to similar forces. Artificial intelligence (AI) spending, semiconductor demand, interest rates, antitrust regulation, and changing expectations for growth can affect several holdings simultaneously. If technology valuations contract, all three ETFs could decline together, even though only one is explicitly associated with the Nasdaq.
That matters particularly inside a Tax-Free Savings Account (TFSA). Investment gains and withdrawals are tax-free, but losses don’t restore the contribution room used to purchase the investment. Understanding how a TFSA works means treating that room as valuable portfolio space rather than collecting ETFs based only on their recent returns.
Give every ETF a different job
I wouldn’t automatically sell these funds. I would first decide what each one is supposed to accomplish. XEQT is already designed as a complete global equity portfolio. Someone comfortable with its geographical allocation may not need XUU or HXQ at all.
Alternatively, XUU could serve as the U.S. core, while HXQ becomes a smaller satellite position for someone deliberately seeking additional growth exposure. The rest of the portfolio could then add Canadian, international, emerging-market, or fixed-income assets rather than another helping of American mega-cap technology.
Investors comparing the best Canadian ETFs should look beyond fund names and management fees. Check country exposure, sector weights, and the largest underlying holdings. Then calculate those weights across the entire portfolio.
Foolish bottom line
Owning three ETFs can produce excellent diversification. It can also create one concentrated investment wearing three different ticker symbols.
XEQT, XUU, and HXQ are individually useful funds, but combining them equally would push approximately 80% of the portfolio into U.S. equities and create substantial exposure to the same technology giants. Your TFSA probably doesn’t need more ETFs. It needs every ETF to do a meaningfully different job.
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