These ETFs Have Become Too Popular. What That Means for Investors.

These ETFs Have Become Too Popular. What That Means for Investors.

Text size

Two weeks ago, the underlying index of the



iShares Global Clean Energy



exchange-traded fund (ticker: ICLN) changed its construction and significantly increased its number of holdings, from 30 to 81. The changes came after the fund’s size ballooned nearly tenfold over the past year, to $6 billion in assets, as clean energy became one of the hottest investment themes in 2020. Its sister fund in Europe has amassed $5.5 billion following a similar surge in popularity.

The huge inflows have significantly boosted the funds’ stake in some smaller, thinly traded holdings—a situation that could be problematic if investor sentiment suddenly reverses and the funds need to exit those thinly traded shares. The goal of the index expansion, says Ari Rajendra, senior director at S&P Dow Jones Indices, is to ease any potential liquidity problems and allow the funds to grow even larger.

Active ETFs from the widely popular ARK Invest have faced the same challenge as they drew a relentless flood of money over the