There's a lot going on in the mutual fund world, and if you miss something, it could end up costing you money. To keep you up-to-date and on top of things, below we scope out some of the happenings in the mutual fund industry during the past week and how they may affect your portfolio.

ETFs go off track
There's much to be said for owning exchange-traded funds -- they're cheap, have a lot of trading flexibility, and can frequently be more tax-efficient than regular old mutual funds. But some investors who expect their ETFs to track their indexes exactly may be in for a surprise. According to a recent Wall Street Journal article, 54 ETFs had tracking error of between three and 10 percentage points in 2009.

Not surprisingly, funds that focused on more exotic or foreign indexes experienced more deviation. For example, the iShares MSCI Emerging Markets ETF (NYSE:EEM) trailed its index by 6.7 percentage points, while the SPDR Barclays Capital High Yield Bond ETF fell short by 13 percentage points.

These meaningful tracking errors should serve to remind investors that ETFs are not perfect index replicas, and that individual returns may vary from expectations. However, investors who stick to more broad-market, well-diversified funds shouldn't run into this problem as frequently.

For example, the SPDR Trust (NYSE:SPY) trailed its benchmark by only 0.19 percentage points last year. Venturing away from the tried-and-true broad market ETFs into more exotic fare like leveraged funds, as well as single-sector and country funds, can open up a world of trouble for investors. Costs are higher, trading volume is typically lower, and tracking error can become more of an issue. To help avoid the array of problems that accompany these "next-generation" ETFs, stick with low-cost, well-diversified funds that won't come with any surprises.

American Funds pleads its case
In the wake of the recent bear market, fearful investors pulled billions of dollars out of equity mutual funds. One of the hardest-hit fund families was American Funds, which lost $33 billion in outflows in 2009. Recently, James Rothenberg, chairman of Capital Management & Research, which acts as investment advisor to American Funds, granted a rare interview. Rothenberg made a case for American Funds' stock-picking prowess and top-tier, long-term performance track record, despite more recent performance difficulties for some funds.

Personally, I think investors who abandon American Funds without solid cause are likely shooting themselves in the foot. This shop employs a well-honed, team-based approach that doesn't rely on star managers. Research analysts are carefully trained and brought up through the ranks. There are several first-rate funds in its lineup, including American Funds Growth Funds of America (AGTHX), which invests in large-cap growth names like Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG). On the international side, American Funds Europacific Growth (AEPGX), which focuses on foreign plays like America Movil (NYSE:AMX) and Teva Pharmaceutical (NASDAQ:TEVA), outranks 95% of its peers.

It's true that the American Funds lineup comes with a nasty front-end load, which investors should avoid paying at all costs. Fortunately, if you can purchase American Funds offerings through your 401(k) or other qualified retirement plan, you can likely sidestep that load.

There are a lot of good choices here, so investors shouldn't be so quick to write off one of the biggest and most well-run fund shops in the business. 

Vanguard joins the party
Cutting trading commissions is the hip new thing to do, and fund shops everywhere are lining up to get in on the game. In recent months, Schwab announced that its proprietary ETFs would trade commission-free, while Fidelity outlined plans to make 25 iShares available with zero trading commissions. Last month, Vanguard entered the fray by offering 100 free trades on stocks and ETFs to its upper-echelon Flagship clients -- those with at least $1 million with Vanguard. This is up significantly from the usual 12 free trades Vanguard has offered its Flagship clients for the past three years.

In general, I think reduced-fee or commission-free trading is a good thing. Ultimately, investors will save money, which should fatten their retirement accounts in the long run. Of course, folks shouldn't use free or lowered commissions as an excuse to bump up their short-term trading -- long-term investing is still the goal.

I'm glad to see Vanguard joining in the reduced/free commission trend, although it would be gratifying to see it extend this privilege to more customers. Vanguard has several first-rate exchange-traded funds, like Vanguard Total Stock Market ETF (NYSE:VTI) and Vanguard Total Bond Market ETF, so many more investors could take advantage of lowered commissions to own these funds. Ultimately, the move toward reduced or free trading commissions has started, and will likely continue to gain popularity in the near future as more brokerages get in on the game.

Stay tuned for more mutual fund news and updates in the coming weeks! 

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Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. Google is a Motley Fool Rule Breakers pick. America Movil is a Motley Fool Global Gains recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft, which is a Motley Fool Inside Value pick. Charles Schwab is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.