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Why popular index combinations offer less spread than you would think. Why popular index combinations are less diversified than they seem.
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Combining MSCI World with the S&P 500 adds little diversification: roughly 65 to 70% of MSCI World holdings sit in the S&P 500 too, and the same US mega-caps dominate both indices. The pairing creates concentration risk. Real diversification comes from disjoint pairings such as MSCI World plus emerging markets, or a single ETF like FTSE All-World or MSCI ACWI.
MSCI World and S&P 500 overlap by roughly 70 percent, which is not real diversification
Real spread requires different regions and asset classes
Single-ETF solutions (FTSE All-World, MSCI ACWI) avoid the problem elegantly
More ETFs do not automatically mean less risk
Combining MSCI World with the S&P 500 adds little diversification: roughly 65 to 70% of MSCI World holdings sit in the S&P 500 too, and the same US mega-caps dominate both indices. The pairing creates concentration risk. Real diversification comes from disjoint pairings such as MSCI World plus emerging markets, or a single ETF like FTSE All-World or MSCI ACWI.
MSCI World and S&P 500 overlap by roughly 70 percent, which is not real diversification
Real spread requires different regions and asset classes
Single-ETF solutions (FTSE All-World, MSCI ACWI) avoid the problem elegantly
More ETFs do not automatically mean less risk
More funds feel like more diversification. Often they are the opposite. Hold two ETFs that buy the same companies, and you have doubled a single risk rather than spread it.
Diversification is not measured by the number of funds, but by the number of risks they spread.
Many investors pair MSCI World with the S&P 500 in the belief that this makes them more broadly diversified. In truth they create a substantial concentration risk: roughly 65-70 percent of the MSCI World positions are also held in the S&P 500.
The mechanism behind it is unassuming. Both indices weight by market capitalisation, and the largest companies in the world are currently American technology groups. Whoever saves into both ETFs in equal parts therefore holds not two markets but largely the same market in two wrappers, with a US share well above that of the MSCI World alone.
More ETFs do not automatically mean more diversification. What matters is which markets the ETFs cover, not how many ETFs sit in the portfolio.
| Characteristic | MSCI World | S&P 500 |
|---|---|---|
| Countries | 23 developed markets | United States only |
| Positions | ~1,400 | ~500 |
| US share | ~70 percent | 100 percent |
| Top 10 weighting | ~25 percent | ~35 percent |
| Emerging markets | No | No |
The ten largest positions in both indices are nearly identical: Apple, Microsoft, Amazon, Nvidia and other US mega-caps dominate each of them. In a US correction, both ETFs therefore fall almost in lockstep; at the very moment diversification is supposed to help, the combination has spread almost nothing.
Three questions expose most doublings, without any special tooling:
Whoever wants precision compares the index compositions from the providers, or has their own portfolio screened automatically; that is exactly what the overlap analysis in Investboard is built for.
Real diversification means the holdings are spread across different sources of risk:
A single MSCI World covers only large and mid caps in developed markets: no emerging markets and no small caps. Whoever wants to add something sensibly adds what is missing, rather than doubling what is already there.
| Combination | Coverage | Overlap |
|---|---|---|
| MSCI World + S&P 500 | Developed markets (US doubled up) | ~70 percent |
| MSCI World + MSCI EM | Developed and emerging markets | 0 percent |
| FTSE All-World (1 ETF) | Developed and emerging markets | n/a |
| MSCI ACWI IMI (1 ETF) | All countries + small caps | n/a |
The classic two-fund solution combines a developed-market index with an emerging-market index: the two sets are disjoint, and the weighting remains your deliberate decision. Whoever prefers not to maintain a weighting takes a single worldwide index.
Single-ETF solutions such as FTSE All-World or MSCI ACWI are the simplest and most effective choice for most investors. No rebalancing, no overlap, maximum spread.
Overlap is not a prohibition; it is information. Whoever wants to deliberately overweight the United States can do so with MSCI World plus the S&P 500, as long as they know that this is what they are doing and treat the position as what it is: an active bet on a single market, not a contribution to diversification. Overlap becomes a problem only when it arises unintentionally and the perceived risk drifts away from the actual one.
Make overlap visible
Investboard checks your portfolio for markets you hold twice over and shows how much real spread sits behind the number of funds.
Check your portfolio for overlap →Roughly 65-70 percent of the positions in the MSCI World are also held in the S&P 500. Both indices are heavily dominated by US mega-caps.
A sensible combination would be, for example, MSCI World + MSCI Emerging Markets, or FTSE All-World as a single-ETF solution. What matters is that the indices cover different markets and regions.
Not directly, but it creates a concentration risk. When US tech stocks fall, both ETFs are hit at the same time. The expected return is no worse, but the risk is higher than with genuine spread.