Indeed. I work in finance, and it does appear that we may already be in a place where an unhealthy amount of capital is in index funds and ETFs. How this will all play out is not really clear to me, but its somewhat concerning.

I have been favoring funds over ETFs the last few years because they have a bit more leeway in what they choose to hold and the friction in getting in/out of them should lead to less chance of pricing dislocation that could cause a lot of unnecessary drama and price volatility.

In the end though, I tend to believe that passive investing may continue to grow until it gets to the point that there is so much "dumb" money out there chasing the same companies that active investing can show real returns above passive.