It always pays to poke around your mutual fund and see what s under the hood. But investors might be surprised to find something other than the usual mix of stocks and bonds these days: exchange-traded funds.

With most investors tapped out and shell-shocked, the purveyors of ETFs baskets of stocks that trade together have been courting fund managers in a bid to increase their assets. Their efforts seem to be paying off: According to Morningstar, 829 mutual funds hold more than $16.2 billion in ETFs. That s good news for the ETF industry, which is trying to crack the $2.9 trillion 401(k) market. But what does all this mean for mutual fund investors?

Granted, most mutual funds that own ETFs do so for specific purposes, such as a place to park cash they might need for investor redemptions. But a handful of fund shops have gone further, constructing entire portfolios out of ETFs. Seligman, for instance, now offers five target-date funds composed of ETFs. And Rydex offers two ETF-heavy funds, one that invests in a rotating mix of foreign stock markets and another that holds "alternative" assets such as currencies and commodities.

If a fund invests a small amount in ETFs, there isn t much cause for concern. But trouble can arise if fees pile up. While ETFs tend to have low annual-expense ratios, fees can still eat away nearly 1 percent each year, which comes right out of investor returns. Tack on the management fees charged by the mutual fund and a fund could have a tough time beating the market, especially if it trades frequently or loads up on ETFs with high expenses.

Ultimately, experts say it comes down to how the fund uses ETFs. If a manager has proven savvy at "sector rotation" buying or selling big swaths of the market at one time ETFs may be the best way to go, says James Angel, an associate professor of finance at Georgetown s McDonough School of Business. "Just do your homework," he adds.