Investors Showing Little Interest In Some New Barclays Indices - TheStreet

If you build it, they will come?

Afraid not.

Investors are showing little interest in several of the new exchange-traded funds just launched by

Barclays Global Investors

.

Since the middle of May, Barclays

has rolled out more than two dozen of these index funds that trade like stocks. More are on the way.

But the trading volume in many of these products, dubbed

iShares

, has been positively paltry.

For investors, the low volume is a minor worry, at most. The same can't be said for Barclays, the world's largest indexer.

Of the 12 sector funds that Barclays launched last Friday, some are trading just a few hundred shares a day. On Wednesday, only 200 shares of the

iShares Dow Jones U.S. Utilities

(IDU) - Get Report

index fund changed hands. On Thursday, the fund's trading volume was exactly the same.

The volume on other iShares, such as the

Dow Jones U.S. Energy

(IYE) - Get Report

and

U.S. Telecommunications

(IYZ) - Get Report

index funds, is running just a few thousand shares a day.

In contrast, average daily volume on

State Street Global Advisor's

Spider

(SPY) - Get Report

, which tracks the

S&P 500

index, is 8.8 million shares this year, according to

Baseline

. The

Technology Sector Spider

(XLK) - Get Report

trades close to 840,000 shares a day on average.

You still can't get price data on four of Barclays' new iShares, which indicates they're not trading at all. Those four track the

Dow Jones U.S. Chemicals

(IYD:Amex),

Dow Jones U.S. Consumer Cyclical

(IYC:Amex) and

Dow Jones U.S. Industrial

(IYJ:Amex) indices and the Canadian

S&P/TSE 60

(IKC:Amex) index.

Some market insiders are quite surprised at the lack of interest. "I guess you can set the table, but you can't force people to eat," says one trading professional, who expects interest to build over time.

Nevertheless, Barclays officials insist they were prepared for this type of reception.

"I'm not surprised," says Lee Kranefuss, CEO of Barclays' individual investor business. "We expected that some would be more popular than others. ... We're very happy with the trading results."

Kranefuss points out that the iShares country baskets (formerly called

WEBS

for

World Equity Benchmark Shares

) still experience low volume at times. Indeed, the

Austria

(EWO) - Get Report

and

Netherlands

(EWN) - Get Report

baskets, which have been around for more than four years, are trading an average of about 10,000 shares a day this year.

On the other hand, iShares that are tracking the bigger, more recognizable indices are putting up respectable volume numbers.

Barclays centerpiece product, its

S&P 500

fund

(IVV) - Get Report

has posted an average daily volume of about 300,000 shares since it made its debut in mid-May, according to Baseline.

The blockbuster launch of the

Nasdaq 100

tracking stock

(QQQ) - Get Report

in March 1999 probably heightened expectations. That portfolio, known as the QQQ, had taken in more than $6 billion by the end of 1999. Its average daily trading volume this year is more than 28 million shares.

But there was tremendous investor interest in a Nasdaq 100 product before the QQQ ever launched. That can't be said about funds tracking sleepy sectors like basic materials.

Indeed,

Merrill Lynch

has been incredibly successful at launching its own exchange-traded sector baskets, called

HOLDRs

. However, most of these 20-stock portfolios track high-growth areas like biotechnology. In its 12 existing HOLDRs, Merrill has taken in about $10 billion.

Merrill also has an army of more than 14,000 brokers to sell its wares.

A successful product launch inevitably goes back to the Wall Street adage: Stocks aren't bought. They're sold.

Barclays, which has attracted about $1.9 billion in assets to its 26 new iShares funds (excluding new country baskets), says it's still working on getting the word out. The firm has been running ads in newspapers like

The Wall Street Journal

and on cable stations like

CNBC

. It has started placing ads in personal finance magazines and is planning direct-mail campaign. Barclays also has a sales force calling on financial advisers and brokers.

"They've probably gotten off to a slower start than people thought," says the same trading professional. "But I don't think it's a reason to panic."

The low volume on these exchange-traded funds shouldn't hurt you if you're interested in buying one.

Like other exchange-traded funds, the Barclays iShares were designed to trade in line with the price of the underlying portfolio of stocks.

If a price disparity develops, market makers and arbitragers should be able to step in and capture the difference between the share price and the value of the underlying portfolio, which should close any premium or discount that develops.

Traders also say low volume shouldn't widen the bid-ask spread, which is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. A big spread would mean higher trading costs for investors. But the liquidity of the underlying basket should keep the spreads tight, they say.

In any case, the everyday investor should be more concerned with how any potential purchase fits into his or her portfolio.

But how many people are really hankering for chemicals index funds?