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 past year. While passive index funds are traditionally more diversified and thus less inclined to have such problems, the rising popularity of thematic ETFs—which often track an index with just a few dozen stocks in emerging industries—have brought concentration and liquidity risk to the passive world as well.

The Clean Energy ETF isn’t the only one. The VanEck Junior Gold Miners ETF (GDXJ) set the precedent in 2017 by broadening its index to include larger gold miners, after sizable inflows boosted its ownership in some smaller holdings to nearly 20%. A year later, the Vanguard Real Estate ETF (VNQ) expanded the universe of real estate properties it can invest in to increase diversification.

Rahul Sen Sharma, managing partner at index provider Indxx, told Barron’s that the firm examines the liquidity of its indexes on a regular basis and makes adjustments if any issues arise—although nothing significant has so far. U.S. Global Investors CEO Frank Holmes says the firm’s $4 billion U.S. Global Jets ETF (JETS) has been adding airport stocks and European airlines to cope with the fund’s asset growth.

A broader index, however, inevitably causes a fund to deviate from its initial investment theme. The iShares Clean Energy ETF, for example, has loosened its criteria to include more small stocks and companies that only generate part of their revenue from clean energy. Investors who don’t pay attention to these changes might end up holding a fund that’s no longer what they think it is. A revised index also makes a fund’s performance history even less indicative of its future, but most people won’t realize this, says Ben Johnson, director of global ETF research for Morningstar.

Barron’s found several large, concentrated index funds that could face liquidity problems. The $5.2 billion Alerian MLP ETF (AMLP), for example, has just 17 holdings and a 5% weight in NuStar Energy (NS)—equivalent to a 12% stake in the small-cap stock. If the market starts to tumble and investors redeem 10% of the fund’s shares, it would lead to $26 million worth of selling in NuStar shares—about 40 times their average daily trading volume. If there are few buyers on the other side of the trade, it could be very costly to exit the position. ALPS Advisors, the fund’s managing firm, didn’t respond to a request for comment.

Still, Johnson notes that a fund’s investor base could hint at the likelihood of a capital exodus. The Alerian MLP ETF, for example, has a steady asset flow and is likely owned by income-seeking, long-term investors. The iShares Clean Energy ETF, on the other hand, attracted a lot of “hot money” last year, he says. When the market turns volatile, those investors might be quick to sell.

Write to Evie Liu at evie.liu@barrons.com