First off, Happy Halloween. Market futures are looking bright at this hour of the morning. Let's hope the Fed's policy statement at the end of the trading day keeps it that way for tomorrow.

Now, as for the real business of this article... Did you happen to see this Wall Street Journal article by Johathan Clements entitled When ETFs
Are Better Than Index Funds? My first thought on reading it through was that he'd gotten it right. On further inspection and reflection, I'm not so sure.

In the first part of the article Johathan pretty much aligns with my recent article, Using Mutual Funds and Exchange Traded Funds Wisely. I enjoyed that part of his essay. I have to admit, a small part of me wondered whether he'd possibly even read my article.

Then I went on to read the part where he discusses reasons you might want to own Mutual Funds. His third reason for possibly owning Mutual Funds as a portion of your portfolio:

...don't assume ETFs will always be cheaper, even if you have a long time horizon and a big chunk to invest. For instance, in 2004, Fidelity Investments slashed expenses to 0.1% on four stock-index mutual funds geared toward ordinary investors.

That got me to take notice. Less than 0.1%? Can that be true? I decided to do a little research. It turned out to be harder than I thought. If you go to Fidelity's web site you can easily find their Mutual Fund section. The job of finding low cost Mutual Funds to invest in is a lot harder. They don't exactly put their low cost options front and center.

You can't screen for low cost options using their default Mutual Fund search page. And you can't specify that you want to look for Index Funds only. In fact, there is no listing for index funds at all. The word "index" does not even occur anywhere on the page.

The fact is, you can't exactly screen for these low cost options using Fidelity's Advanced Mutual Fund Search screen either. Ultimately, and to be as fair as possible, I was able to filter it down to less than 60 Mutual Funds by selecting their lowest Expenses and Fees box (0.5% and under), no-load funds only and Fidelity funds only.

At this point I stopped trying to find Fidelity's low cost funds through their search screens. I stopped because it was obvious to me they didn't particularly care for me to find them - at least not this way. I stopped also because I knew Fidelity's low cost funds are all part of the Spartan family. So I pulled up fees and expenses details on the first Fidelity Spartan fund I found, the Spartan Extended Market Index Fund - Fidelity Advantage Class:

and there it was, the magical less than 0.1% fees and expenses number. 0.07% is pretty good for an actively managed fund. But watch out for those other expenses. That Annual Index Account Fee is a $10 fee which applies to any account with less than $10.000 in it. And watch out for that quarterly redemption fee of .75%. You must leave your money invested for 90 days or longer in order to not be subject to this fee.

Mutual Funds have their place in your investment portfolio, right alongside Exchange Traded Funds. I don't think you can effectively replace an ETF with an actively managed mutual fund however. If you do the digging you'll uncover the wolf in sheep's clothing masquerade. You'll find the extra fees, and the limits on what you can do with your investment dollars - limits that make mutual funds less attractive than their ETF alternatives, and that make money for their management companies.