The top holdings of a few large mutual funds are ETFs, reports Ian Salisbury for SmartMoney.

For example, the largest holding of the $900 million Columbia Small Cap Core Fund is the iShares Russell ETF. Many other substantially sized funds hold the ETF as well, such as the American Century Small Cap Value Fund and the Invesco Van Kampen Small Cap Growth Fund.

The fact that many of the largest holdings are ETFs is surprising, seeing how ETFs track an index, which puts it at a possible disadvantage when compared to funds run actively by a manager. The manager has a chance to direct that very fund into great success. Despite the disadvantage, ETFs appear in many equity portfolios.

"…ETFs are useful," states Matt Hougan, president of ETF Analytics at publisher Index Universe. Fund managers at Columbia Asset Management [profile] sometimes sell ETFs in place of their preferred stocks, to pay off investors.

Others disagree. "It's just being lazy," says Herb Morgan, president of Efficient Market Advisors. 

Edited by: JY


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