I use ETFs alot, and find they can be vastly superior to Mutual Funds in many ways. The WSJ did a nice comparo between ETFs and Index Funds last month:
"According to Boston-based Financial Research Corp., ETFs now account for nearly one-third of all assets devoted to so-called passive investing (a term for investments like index funds), up from 9% in 2000. In less than three years, the total number of ETFs has jumped nearly 70%, to 185, while the number of index funds has remained relatively flat. ETFs have even started popping up in 401(k) plans.
A key driver in the popularity of ETFs is the failure by many mutual-fund managers to beat the market for extended periods of time, even as they collect big management fees. Instead, many advisers have turned to a strategy of lower-cost index funds, and increasingly, ETFs."
Also of interest: ETFs trade intraday, as opposed to merely being a "price on close" vehicle. And, you can short an ETF without an uptick.
click for larger table
Source:
The Great Race: ETFs vs. Funds
New Opportunities for Indexing Complicate Investors’ Choices; Picking the Right Market ‘Slice’
ELEANOR LAISE
THE WALL STREET JOURNAL, November 5, 2005; Page B1
http://online.wsj.com/article/SB113115471724589112.html
I think etfs compete with indexed mutial funds such as Vanguards. One advantage of the mutual fund is price averaging since you can put in small amounts per month. ETFs have an advantage of focus.