Young & Invested: Do you need both IVV and NDQ in your portfolio?
A closer look at the illusion of choice in a concentrated market.
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 59
I have a hunch.
If you’re an Aussie ETF investor, chances are you have some overlapping holdings in your portfolio. Despite the plethora of products out there, the universe of underlying stocks is surprisingly concentrated.
As someone who used to own about ten ETFs in the name of optimisation, I’ve been guilty of this myself. The point isn’t whether it’s right or wrong to own five funds or twenty. It’s about how those funds interact as a portfolio and whether that lines up with what you’re trying to achieve at a reasonable cost.
I recently came across a Morningstar US article comparing two widely popular ETFs offshore, QQQ and VOO, to determine whether it made sense for investors to hold both.
It got me thinking about our local equivalent iShares S&P 500 ETF IVV and Betashares Nasdaq 100 ETF NDQ. Both are popular choices among investors, each raking in over 800 million inflows over the 12 months to March 2026.
Given vastly different marketing strategies, I suspect that many Aussie investors likely hold both in their portfolio without a full grasp on the level of overlap and the implications of this.
Why do we care about portfolio overlap?
The implications of holding overlapping funds are broad. Modern Portfolio Theory states that the more a portfolio is composed of securities with different properties (e.g. sectors or style biases), the lower the degree of risk.
Some investors interpret this as a green light to add a wide mix of ETFs and assume they’re achieving broad diversification. But in a market where concentration remains near historical highs, the odds are that you’re more concentrated than you think. Given the current structure of the US equity market, even strategies that appear different on the surface can end up relying on the same narrow set of return drivers.
Another mistake ETF investors often make is overpaying. I often reinforce the importance of low fund fees and their effect on investor outcomes. Most investors are aware of the link, yet with costs falling across the industry, it’s easy to assume the remaining differences are trivial. NDQ and IVV are a good example of funds with different marketing (thematic tilt vs broad-based core holding), but similar exposure at a varying fee level.
A closer look
I’ve previously done a breakdown of the Betashares Nasdaq 100 ETF NDQ here and the iShares S&P 500 ETF IVV here. For those entirely unfamiliar with the products, it might be helpful reading those as a primer.
The intention of this article isn’t to run a compare and contrast exercise and arrive at the ‘which one is best answer’. Given IVV and NDQ top the list for some of the most widely held products out there, there’s a good chance people are doubling up.
As the name implies, Betashares Nasdaq 100 ETF NDQ adopts a full-replication approach to track the performance of the 100 largest non-financial firms on the Nasdaq exchange.
The fund’s methodology results in heightened sector concentration with around half the holdings residing in technology compared to its peer category at 33%.
On the other hand, iShares S&P 500 ETF IVV tracks the flagship S&P 500, which selects 500 of the largest US stocks, comprising ~80% of the US equity market and weights constituents by market cap.
With far more holdings under its belt, IVV naturally ends up with a lower concentration in technology compared with NDQ. But sector exposure is still tech‑tilted because the US market itself is tech‑heavy.
Despite the differences in index methodology, there’s still a substantial amount of overlap between the two due to the structure of the US market.The graphic below highlights the top ten holdings they share. The similarity is hard to ignore.
US mega-caps dominate the top of each fund, which has led to some level of long-term performance convergence in the past. Over the past five years, IVV has delivered a trailing annualised return of 14.15% (NAV), while NDQ returned 15.25%.
The additional concentration in tech has given NDQ a modest performance boost,but at an annual cost over ten times that of IVV (0.48% vs 0.04%).
Should you invest in both?
Whilst I don’t believe there is a right or wrong answer to the question, I personally wouldn’t hold both funds in my portfolio. They’re two products with somewhat comparable exposure, but at varying fee levels.
Whilst they may look different on the surface, in practice they behave like variations of the same theme. Both are dominated by the same handful of mega‑cap US companies and thus will rise and fall with the same tech-centric market forces.
Using Morningstar’s Portfolio X-ray Tool I found an approximate correlation of around 95% between IVV and NDQ, which emphasises just how significant the overlap is. If the goal is broad diversification, there is minimal additional benefit to holding both, especially when they come at starkly different costs.
But I acknowledge there are alternative use cases that could justify the two. Despite the overlap, owning both isn’t a meaningless exercise if you’re consciously choosing to tilt more aggressively toward the tech sector and understand the trade‑offs. In this case, IVV might form your broad-market core and NDQ would be a satellite allocation. I don’t think there’s anything wrong with that, however it signals an active bet on the ongoing dominance of the tech sector.
I’m not here to debate the merits of that view. My investment strategy focuses on achieving market returns, rather than making concentrated bets on single sectors. I understand this is the crux of investing for many enthusiasts and it’s difficult not to extrapolate past returns. But the point of a diversified portfolio is that it balances exposure to give you resilience against eventual shifts in market leadership.
Either way, I often come back to the same principle, which is that investors need to be aware of exactly what they’re buying into and why they’re doing so. Intentionality is key to ensuring your investments continue to work towards your goals.
What our analysts think
Despite wide-spread popularity and strong historical performance, Morningstar has long held a Neutral Medalist Rating for NDQ. For passive strategies, a Neutral Rating implies we do not expect the fund to beat the Morningstar Category average return after fees.
On the other hand, our analysts ascribe IVV a Gold Medalist rating, referring to it as a best-in-class option for large-cap US equities.
I don’t consider this is ‘which fund is better exercise’. The point is to highlight how two funds with very different marketing, fee levels and index methodologies can end up delivering similar underlying exposure and thus outcomes.
