Retail investors are once again showing intense enthusiasm for exchange-traded funds (ETFs), prompting growing concern among market observers that this exuberance could be a warning sign of overheating markets.

In recent months, billions of dollars have flowed into some of the riskiest corners of the ETF landscape. Mike Akins, founding partner at ETF Action, cautioned in an interview with CNBC’s “ETF Edge” that this trend echoes the speculative behavior seen during previous market peaks.

“The number of new ETF products is at an all-time high,” Akins said. “We’re seeing a resurgence in niche and thematic strategies — the same type of activity that marked 2020 and 2021, right before the market topped out.”

According to ETF Action’s latest 13F filings, institutional investors account for around 64% of the overall ETF market. However, their presence in newer and riskier segments, such as single-stock ETFs and leveraged or inverse products, is minimal — only about 9% and 10%, respectively. This suggests that retail investors are driving most of the recent growth in these speculative products.

Data from ETF Action shows that nontraditional ETFs — which include leveraged and inverse funds — have attracted over $60 billion so far this year. Akins emphasized that institutional participation in these markets is limited, with most large investors providing liquidity rather than making long-term allocations.

“These strategies are extremely volatile,” he noted. “Retail investors own roughly 99% of them. Institutions aren’t allocating capital to these funds, yet billions of dollars keep flowing in.”

Akins also warned about the surge in popularity of yield-oriented products such as covered call ETFs, which promise attractive returns tied to individual stocks. While these funds can deliver steady income during bull markets, they can quickly unravel if stock prices weaken.

“If you have a covered call strategy that pays out 100% of its value annually but the underlying stock stops climbing, it’s a disaster waiting to happen,” Akins said.

This wave of retail activity recalls the boom in thematic ETFs during the pandemic, when funds like Ark Innovation (ARKK) attracted enormous inflows from individual investors chasing rapid gains. The parallels, Akins believes, are cause for concern.

“When you see large inflows into these speculative products, that’s often a contrarian signal,” he explained. “It tends to mean the market is overheating — and history shows that when money starts chasing performance like this, it rarely ends well.”