E*Trade to offer own mutual funds
The online discount broker plans to launch its own line of mutual funds in a move to capitalize on the popularity of index funds.
As previously reported, E*Trade plans to capitalize on the growing popularity of funds by starting its own index fund offerings.
Under the arrangement with Barclays, E*Trade will offer a selection of index, enhanced index and fund-of-funds products. These funds are intended to mirror the performance of the S&P 500 index.
"As the world's largest provider of index strategies, we bring to E*Trade's clients expertise developed over the last 25 years in managing index and quantitative portfolios for institutions all over the world," said Lawrence Tint, managing director and head of global client relationships for Barclays Global Investors.
The online trading site will also start E*Trade Asset Management, a registered investment advisor, to manage the company's funds. The S&P 500 index fund will go live mid-January, according to Brian Murray, vice president and general manager of E*Trade's Mutual Funds Group.
Investors have turned to mutual funds more and more in recent years, and as the stock markets surged in the 1990s, investors' interest in index funds also increased. Index funds are designed to match, not beat, the performance of stock market indexes such as the S&P 500 or the Russell 2000, which is made up of small cap issues.
"Index funds are remarkably popular right now, especially during volatile times," Murray said, as managers redistribute holdings during down times to ensure the best performance of an individual fund.
The company already offers more than 4,000 third-party funds in its Mutual Fund Center, but E*Trade also wants its own cut of the mutual fund pie.
"The whole idea is to diversify our revenue stream," Murray said. "We want to be more than just an online trading site. We want to be the single destination site for all financial needs."
The electronic brokerage wars have escalated this year with some sites competing for the lowest priced trades. Ameritrade offers transactions for as little as $8. Meanwhile, others such as E*Trade and Charles Schwab are looking for ways to add more services.
Earlier this week E*Trade signed a two-year deal with investment information firm Morningstar to provide mutual fund data.
Schwab, considered by many to be the leading online brokerage, also offers its own mutual funds. Yet with nearly 280 branches nationwide, Schwab is not a pure Internet company-although now more than half of Schwab's transactions take place online.
E*Trade has been on an aggressive marketing and brand promotion campaign in recent months. The company unveiled Destination E*Trade, its redesigned financial "portal" in September, and its TV ads are unavoidable. The company is even driving a new E*Mobile, a minivan touted as a "website on wheels," across the country to introduce novice investors to online trading.