Author: Chandrima Sanyal

Vanguard S&P 500 ETF (NYSE:VOO) has quietly become America’s go-to passive wager even while the very index that it tracks becomes riskier by the day.

• VOO saw inflows north of $3 billion in the last 5 days. Check its prices live.

With the S&P 500 up almost 85% in the last three years, VOO has ballooned to more than $750 billion in assets, making it the world’s largest ETF. But behind that success is an irony: the most “diversified” fund in the market is more concentrated than ever.

Ten mega-cap stocks, headed by Nvidia Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL), now constitute almost 40 % of the index. That’s a level of concentration not experienced since the dot-com bubble. So VOO’s “broad market exposure” is dominated by a few tech giants.

That notwithstanding, VOO doesn’t seem bothered. Despite the escalating trade war with China, the U.S. federal government continuing an extended shutdown, and local banks reporting bad and phony loans, VOO is standing firm and shrugging off three full-blown catalysts that would typically send even the toughest bull winching.

Also Read: High Stakes For VOO And SPY: The S&P 500’s Lofty Valuations Put ETF Strategies To Test

Breaking It Down

• Trade tensions escalating — the U.S. Treasury Secretary is to meet his Chinese counterpart in the face of new tariff threats and delisting Chinese companies.
• Government shutdown impasse — the Senate again could not approve funding, extending the shutdown into double digits.
• Banking trouble in the making — regional banks like Zions Bancorp and Western Alliance Bancorp are fighting loan-fraud and exposure problems.

None of these has derailed VOO. It is up over 13% year to date, even with sideways trading in recent weeks. Also, according to data on Etfdb.com, the fund experienced inflows of $3.4 billion in the past 5 trading days, surpassing peers like SPDR S&P 500 ETF Trust (NYSE:SPY) and iShares Core S&P 500 ETF (NYSE:IVV).

There is, however, a downside. While investors might enjoy the low-cost, sit-back ease of VOO (mere 0.03% expense ratio), they are, in effect, relying on the leading holdings continuing their reign and profit growth. The index’s elevated forward P/E (~22.4x) is reflecting the past. For instance, periods when the S&P 500 traded at over 22x have provided 10-year average annualized returns close to zero (around 3%).

For the moment, VOO is the epitome of stability. But as concentration risk runs deeper, the low-cost index behemoth may soon be confronted with a paradox: too cheap to ignore, and too concentrated to resist.

Read Next:

• Leveraged ETF Boom Raises Red Flags, Expert Warns

Photo: Shutterstock

With the U.S. ETF market headed for a record-setting year of new product launches, fears are growing that the industry is sliding toward speculative excess. Morningstar analyst Daniel Sotiroff thinks leveraged ETFs are right in the middle of it.

In the first nine months of 2025 alone, nearly 800 new ETFs have hit the market, surpassing 2024’s full-year record of 746. The total could top 1,000 before year-end, according to Reuters data, a staggering pace that has prompted even insiders to warn of “an unsustainable level of launches.”

Sotiroff agrees, but with sharper words.

“Most of the ETFs launched this year don’t really serve a legitimate long-term purpose,” he told Benzinga. “I suspect they’ll eventually shut down, though it may take longer than three years for some of them.”

The Speculative Surge

While industry leaders cite growing investor choice and innovation, Sotiroff sees something more troubling behind the wave of leveraged and single-stock ETF filings.

“I don’t think it’s genuine investor demand or a supply gap,” he said. “A lot of these launches are aimed at creating speculative ETFs that attract naïve users. The creators and users are gambling and expecting a huge payoff. What they’re doing is the exact opposite of investing.”

Leveraged ETFs — products designed to multiply daily returns, often by two or three times — have become increasingly aggressive. The recent filing by VolatilityShares to launch 5x leveraged ETFs tracking Bitcoin, Ethereum, Tesla Inc (NASDAQ:TSLA), Strategy Inc (NASDAQ:MSTR), and Solana shocked even veteran analysts.

“That filing was mind-blowing,” Sotiroff said. “About half of the leveraged ETFs launched more than three years ago have shut down, and another 17% of them have lost 98% of their value. The 5x leveraged ETFs are just amplifying those risks.”

A Market Of Extremes

At the end of September, around 1,600 ETFs held less than $50 million in assets, a red flag for survival.

“ETFs with very little AUM are the most vulnerable to shutting down,” Sotiroff noted. “I suspect most of those aren’t going to live very long.”

While speculative enthusiasm remains, the segment’s scale is limited relative to the broader $13 trillion U.S. ETF market.

“Leveraged and derivative-based ETFs are attracting some money,” Sotiroff said, “but they account for a relatively small segment of the net inflows across all ETFs.”

Still, the combination of easy regulatory pathways, copycat product design, and retail speculation is fueling a market dynamic that Sotiroff believes will end badly for many participants. “Leveraged ETFs perform poorly over long periods,” he warned. “Eventually, the leverage works against them, and it becomes almost impossible for them to recover.”

Retail At The Front Lines

Financial advisers, meanwhile, remain wary of small or risky funds, leaving retail investors disproportionately exposed.

“It’s not new for advisors to avoid small ETFs,” Sotiroff said. “Unfortunately, a lot of the leveraged ETFs have largely been aimed at retail investors who don’t know what they’re getting into.”

As leveraged ETF filings continue to multiply, and issuers test the SEC’s appetite for even higher leverage, Sotiroff’s warning cuts through the noise: the ETF market may not be in a bubble yet, but parts of it are starting to look like a casino.

Read Next:

• 5x Tesla, Bitcoin, Strategy ETFs In Doubt As SEC Signals Uncertainty During Shutdown

Photo: Shutterstock