re: mutual funds that invest in mutual funds...

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So, just trying to blow smoke up my arse.

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Not at all, was just stating an opinion. But I can give you a practical reason for my opinion.

The way mutual funds are structured, if — worst case scenario — a mutual fund were to dissolve, each investor in that fund would receive his or her proportional share of each underlying holding within the fund.

In the case of ETFs, there is a distinct barrier between investors and a fund’s holdings; meaning that an investor owns the basket, but not what’s in it.

While there are some large institutional investors, termed “authorized participants,” which can create or redeem ETF shares through in-kind transactions, the majority of the investing public does not have this privilege. If an ETF goes bust, the average investor is left holding nothing but an empty promise.

I could get into the long term effects of trading fees in an actively managed portfolio of ETFs, which are considerable, but I sense I'm getting long winded here.

Since they're closed end, they are more likely to dissolve, but that's not my point. The point was the consequences for an ETF dissolving are far greater.

VTSMX has dramatically outperformed VTI if you add in the trading fees, btw. The OP is using Dollar Cost Averaging (I assume), which is also not a smart strategy for ETF investing because of the fees and mathematical improbability of having perfect market timing.

Lots of funds do this, especially with "target retirement" funds or "international" funds. They simply invest in a set ratio of other funds in the same family.

I've never run across double-dipping as you describe though. Mostly it's a way for someone else to set the allocation for you. I prefer more flexibility than that but if you want someone else to make that decision I don't see anything wrong with it.