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Monday, February 22, 1999

Catching Shoppers With "White Label" Funds

Reported by Jason Shank

E*TRADE wants to be your one-stop shop for on-line brokerage services. Obviously. So do several other on-line investment service providers. But the number three on-line brokerage service is making larger strides than most.

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  • Last week, the SEC approved E*TRADE's filing to enter the asset management business. This paves the way for the Palo Alto-based company to form an asset management arm, E*TRADE Asset Management, and also to start its first proprietary mutual fund which went live early Wednesday, Feb. 17th.

    The first E*TRADE fund will be the S&P 500 Index Fund. The fund's advisor is E*TRADE Asset Management, and the transfer agent is PSPC. The fund will be using a master/feeder asset management strategy, with the master portfolio's investment advisor at Barclay's Global Fund Advisors. The fund is no-load, no 12b-1 fee with no fee to establish or continue an account for the new fund.

    The 32 basis point expense ratio compares favorably to the 35 basis points that Charles Schwab charges for individual investors at its S&P 500 Index Fund. It is significantly lower than the 49 basis point expense ratio at the average S&P 500 Index Fund, but nearly twice that of the industry standard Vanguard S&P 500 Index which toes the line at 19 basis points.

    E*TRADE's offering also takes shape from the culture of the first company to build a brand name as an Internet broker. Unlike other funds, all of the company's communications with shareholders will be done through the Internet.

    "This will be the first true paperless mutual fund," said Joe Van Remortel, the vice president of operations at E*TRADE Asset Management, referring to the fact that all prospectuses and reports will be delivered to investors electronically. No snail mail or fax option exists for those investors still resisting the advent of horseless carriages.

    It looks like E*TRADE is following in the footsteps of Charles Schwab & Co. Schwab moved into the asset management in '96, also starting with index funds, and has since expanded its offerings with funds-of-funds. That E*TRADE is now doing the same should be no surprise. Brian Murray, president of E*TRADE Asset Management, is an ex-Schwabie himself.

    Although it could be argued that the S&P 500 Index Fund is now competing with the funds in its supermarket, Murray spins it slightly differently. He told the Mutual Fund Wire that the new company will stay away from actively managed funds as they're "not interested in risking E*TRADE's brand name and to avoid direct competition with the 125 fund families whose funds E*TRADE offers."

    The company plans to introduce additional index, enhanced-index and "fund of funds" products during the next 12 to 18 months, all advised by E*TRADE Asset Management.

    "Adding asset management to our portfolio of businesses is another step in E*TRADE's strategy to diversify its revenue stream by leveraging its electronic business model and its growing base of on-line investors," said Kathy Levinson, president and chief operating officer of E*TRADE Group Inc. "E*TRADE has every intention of dominating the In space as it relates to personal financial services, and E*TRADE Asset Management will play a pivotal role in helping us attain that position."  

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