Buying an ETF may take just a few clicks, but understanding what it contains deserves more attention. Learning to read a fund’s holdings can help you better understand your investments and build your portfolio more thoughtfully.

An ETF’s Name Does Not Tell the Whole Story

Two funds with similar names can offer different investments. Labels such as “global” or “technology” suggest a focus but do not reveal the precise portfolio allocation. Historical performance does not explain what drives its current value either. The answers lie in the ETF’s composition—the specific assets and their weights. These details help you assess whether the fund truly meets your expectations.

Where to Find Information About a Fund’s Holdings

Start on the fund manager’s official website, in the “Holdings” or “Portfolio” sections. A concise overview, known as a factsheet, typically lists the largest investments and a basic portfolio breakdown. For more detail, look for the full list of holdings. Check the date of the information and the ISIN identifying the relevant ETF share class. This helps you avoid comparing different periods or confusing similar fund variants, such as currency-hedged and unhedged versions.

Largest Holdings: Which Investments Have the Greatest Impact

Look at each holding’s percentage weight, meaning its share of the portfolio’s value. For the same percentage price change, a larger holding will affect performance more than a smaller one. The combined weight of the ten largest investments is particularly useful. If they account for 40% of a fund containing 500 companies, the remaining 490 share the other 60%. A large number of companies therefore does not necessarily mean an evenly distributed investment.

Sector and Geographic Allocation: What the Fund Depends On

Next, examine what the companies in the portfolio have in common. A dominant sector can make the fund more sensitive to shared economic factors. The geographic breakdown shows the allocation across countries, which may be uneven even in a “global” ETF. However, distinguish between the country assigned to a company and the markets where it generates revenue. A US company may have substantial business in Europe or Asia, so its results also depend on developments outside its home market.

How Individual Investment Weights Are Determined

This allocation follows the rules used to construct the portfolio. For index ETFs, these are set by the index methodology: market-capitalisation weighting gives larger companies greater weight, while equal weighting assigns the same share to each holding at periodic rebalancing. For active ETFs, the manager makes these decisions within the investment strategy. Weights also change as prices move. A company’s increased weight therefore does not necessarily mean that the fund bought more of its shares—they may simply have risen faster than others (if you would like to learn how the indices tracked by ETFs are constructed and how companies are selected for inclusion, read our previous article).

Additional Indicators to Watch in Bond ETFs

For bonds, also examine issuers’ credit quality, maturity and currency. Distinguish between government and corporate bonds, but do not automatically consider government bonds safe. Credit ratings help assess the ability to meet debt obligations, but they provide no guarantee. Duration also matters: a higher duration generally means a stronger price response to changes in market yields. Unlike maturity, which indicates the time until principal repayment, duration also accounts for the timing of interim payments (we explain why interest rate changes affect bond prices and how this relationship works in more detail in our previous article).

What an ETF’s Holdings Mean for Your Portfolio

Finally, assess how the fund complements your other investments. Broad equity ETFs and technology ETFs may hold the same companies, so combining them increases your exposure to existing holdings. If you have equal amounts in both funds and a company accounts for 6% of one and 14% of the other, its combined weight is 10%. This overlap may be intentional. However, diversification depends on the funds’ combined holdings and the resulting investment weights, not simply on the number of ETFs.

For more investment trends and useful tips, explore our previous articles on AxilAcademy.