E*Trade Plans Two New Index Funds

They will focus on financials and small-caps.
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Funds focusing on financial and small-cap stocks have stayed afloat in this ugly year, and online broker

E*Trade

(EGRP)

is planning to launch

no-load index funds in each flavor for its customers.

With both the

Nasdaq Composite Index

and

S&P 500

far underwater, the average financial sector fund is up 18.8% and the average small-cap blend fund is up 6.4%. E*Trade plans to launch the

E*Trade Financial Sector Index

fund and

E*Trade Russell 2000 Index

fund at the end of the month, according to Tuesday regulatory filings. To own shares of one of the funds, investors need to open an E*Trade account and consent to receive all forms and reports via email, according to the funds' paperwork. The funds reserve the right to cash out investors who don't agree to go paperless.

The financial fund will track the

Dow Jones Financial Sector Index

, while the second fund tracks the

Russell 2000 Index. Funds tracking the Russell 2000, essentially an index of the 2000 smallest U.S. stocks, get a small-cap blend classification from

Morningstar

, meaning they blend pricey and cheap small-cap stocks.

The key yardstick for all index funds is expenses, and there are cheaper options that focus on the same indices as these two proposed funds. The financial-sector fund's annual expense ratio will be 0.65%, much lower than the average financial sector fund's 1.42%. That said, the exchange-traded

iShares Dow Jones U.S. Financial Sector

(IYF) - Get Report

fund, which tracks the same index, levies a lower 0.6% annual expense ratio, according to Morningstar. Keep in mind that you're charged a trading commission when you buy shares of an exchange-traded fund or ETF. For more details on ETFs, check out

this primer.

If you're interested in the small-cap index fund, you might also consider the

(NAESX) - Get Report

Vanguard Small Cap Index fund, which tracks the same index and carries a 0.25% expense ratio.