The number of ETFs isn't as relevant as the total % of funds invested in passive funds as opposed to single stocks or active funds. https://papers.ssrn.com/sol

The number of ETFs isn't as relevant as the total % of funds invested in passive funds as opposed to single stocks or active funds. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5259427 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5259427 > Passive capitalization-weighted index funds now surpass active management in aggregate investor allocations. Flows into passive strategies cause unrelated stocks to move synchronously, undermining diversification and potentially increasing systemic risk. New flows into passive products mechanically overweight overvalued stocks and underweight undervalued stocks due to market-price weighting, exacerbating momentum-driven price distortions. Rebalancing at the stock level to non-price-based anchor weights may mitigate these distortions and enhance long-term returns. This is likely why large-cap stocks have outperformed over past decade.