Exchange traded funds (ETFs) have become popular enough that the mutual fund industry can no longer ignore them. As a result, many mutual fund managers are putting ETFs to use in their portfolios as a diversification tool.

Mutual fund managers are finally embracing ETFs for one of their greatest benefits: diversification. With the rise of ETFs as an asset class, it has made it much easier for institutions to hold broad baskets of securities that cover entire sectors, entire industries or entire asset classes, says an analyst from Morningstar. [Other ways ETFs and mutual funds are sharing territory.]

Although ETFs are popular, the industry is still smaller than the mutual fund industry, reports Ben Baden for U.S. News & World Report. [What advisors think of ETFs.]

Baden spoke to one such manager, Paul Frank, who manages the ETF Market Opportunities Fund (ETFOX), which launched in 2004. Year-to-date, it has returned about 29%. Frank has whittled the 800-plus universe of available ETFs down to about 200 ETFs. This is more manageable, he says. About 75-80% of the fund is in U.S. equities.

Among the growing number of mutual funds that hold ETFs include. If there are any not listed here, throw them in the comments!:

  • Hungtington Rotating Markets A (HRIAX)
  • Aston/New Century Absolute Return Fund (ANENX)
  • Wayne Hummer Pathmaster Domestic Equity Fund (PDEAX)
  • Seligman TargETFund 2025 (STKAX)

For more stories about mutual funds, visit our mutual fund category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.