While exchange-traded-funds have claimed a growing share of investor funds, critics say these funds are “potentially dangerous and untested through a crisis,” says a Bloomberg article from last week.

In a recent letter to investors, Baupost Group founder Seth Klarman explains that the dominance of ETFs is making markets less efficient: “The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become.”

Most ETFs, the article notes, endeavor to track weighted indexes which are “dominated by the biggest companies with the most public debt and equity outstanding.” So, as dollars gravitate toward these passive funds, it also flows disproportionately to bigger and more leveraged companies. This results in outperformance which, over time, can become “superior to what their fundamentals suggest.” Which, in turn, can lead to rapidly inflating bubbles, the article says.

Bill McNabb, chief executive of Vanguard Group, recently wrote that such perceived dangers are “more myth than reality,” and that ETFs will continue to attract much of the investor money coming into stock and bond markets. And some asset managers argue that the situation may offer opportunities for active managers to outperform indexes, “especially for those who steer clear of bonds and stocks that are included in ETFs.”