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Barclays Plans Growth of Retail Presence

Barclays Global Investors - the giant institutional money management firm in San Francisco - is planning to offer 51 exchange-traded index funds, a lineup that is expected to raise the firm's presence among retail investors and increase competition in a slice of the open-end index fund market.

Barclays will offer funds that invest based on such widely recognized indexes as the S&P 500 and the Russell 2000 as well as indexes which track sectors such as petroleum and non-cyclical consumer stocks. The funds will be traded on the American Stock Exchange and priced throughout the day, unlike traditional mutual funds that are priced only once each day. It is unclear when the firm will introduce the products for sale.

Barclays plans to file a registration statement with the SEC in the coming months which will provide more details about the funds. The firm provided a broad outline of its plans in an SEC filing dated April 30. A Barclays spokesperson declined to comment last month, citing securities law limitations on public statements prior to SEC approval of a firm's funds.

Barclays' planned offering is noteworthy for its size alone. There are only 29 funds similar to Barclays' new products now trading on the American Stock Exchange, according to an American Stock Exchange spokesperson.

The new Barclays funds are hybrids of open-end and closed-end funds. The Barclays funds will trade on an exchange like closed-end funds. They will be similar to open-end funds, however, because investors will be able to redeem the new Barclays funds at any time. Closed-end fund shareholders must find an investor to buy their funds, a constraint which frequently causes closed-end funds to sell at a discount to net asset value. Also, like open-end funds, Barclays can readily create additional shares. Adding shares for a closed-end fund is slow and costly.

Barclays' exchange-traded index funds are expected to attract the interest of day-traders who will be able to use the funds to speculate on intra-day movements of key stock indices. Mutual fund industry executives and observers think the exchange-traded funds also will appeal to broker/dealers serving high-net-worth investors and registered investment advisors using asset allocation strategies.

Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I., said the combination of the broad-based fund lineup, Barclays' size and its reputation for managing index products could provide new competition for the Vanguard Group of Malvern Pa., the industry's second-largest firm and the leader in providing open-end index funds. Vanguard representatives did not return calls seeking comment.

The exchange-traded indexes may appeal to registered investment advisors who now use open-end index funds as a basis for asset allocation portfolios, Bobroff said.

The new products are Barclays' latest move to reach retail investors instead of the institutional investors the company traditionally has served. Last month, Barclays renamed its small retail funds group - formerly known as the MasterWorks funds - the Barclays Global Investors Funds.

Barclays historically has been known for serving the defined benefit retirement market with index funds. Only about $16 billion of the firm's $671 billion in assets under management are in retail mutual funds, according to a company spokesperson.

Barclays' new products come at a time when the demand for index funds is high. Financial Research Corp., the fund consulting and tracking firm of Boston, reports that open-end index funds had approximately $37 billion in net sales through June 30. The industry had $42.3 billion in index fund sales in 1998, a record. Total index fund assets under management are approximately $306 billion, according to FRC.

The hybrid structure Barclays plans to use for its new funds has also met with commercial success in the past three years for funds linked to foreign indexes.