Mutual funds can be redeemed for the holdings within each share of the fund, while an ETF is a 'creation unit' and does not technically hold the securities each fund has been designed to track. For this reason, some may argue that mutual funds may be a better representation of the underlying holdings (which is why investors buy funds in the first place). That said, mutual funds may often be inefficient from a tax perspective, carry higher fees, and are often more expensive to trade.
The intraday volatility within ETFs can, in some cases, lead to divergence between the share price of the ETF and the price of the holdings the fund is intended to track. A mutual fund should have less divergence as it prices daily based on the aggregate value of the underlying holdings (less taxes, fees, transaction costs, etc).
I think there is a place for both structures within a well-diversified portfolio.
Adam C. Harding, CFP
For informational purposes only. Not to be considered investment advice.