Is the Morningstar director's prediction a true reflection of the fate of ETFs?

As Morningstar's annual three-day conference gets under way in Chicago, one of its directors has some interesting comments about exchange-traded funds.

Don Phillips, Morningstar's director of corporate strategy, research and communications, told JoAnne Von Alroth of Investor's Business Daily that ETFs will never replace mutual funds.

He said: "It's natural that over time portfolios become more sophisticated, but I don't think most people have the time to get the diversity exclusively from ETFs that they can get in mutual funds. The traditional open-end mutual fund will continue to be the building block of most people's portfolio."

To be fair, Phillips also praised ETFs for their low costs and flexibility.

Still, it's interesting to note that this year Morningstar is grudgingly holding one (count ‘em) workshop devoted to ETFs. I say "grudgingly" because last year I was amazed to find no program devoted to the popular investment vehicle ... and voiced my displeasure to both Phillips and others.

And based on Phillips' latest statements on the subject, it's easy to see why Morningstar has such a lackluster attitude toward ETFs.

Perhaps he's correct. But this annual get-together in recent years has increasingly been focusing on attracting more advisors. It seems rather odd that as surveys by trade groups representing advisors clearly show that ETFs are expected to be the hottest new type of fund added to portfolios over the next several years, Morningstar would be so dismissive of these types of funds.

It makes one wonder whether such an attitude tells us more about Morningstar's strategic business plan than their collective ability to grasp the growing influence of this type of open-end fund.

By the way, Jim ... aren't you on that lone panel Morningstar's providing this year?

I guess it won't be as token as some.