Another PR Blow For E*TRADE (ETFC, ETSPX, ETRUX, ETTIX, ETINX)

If you look on the surface, it looks like E*TRADE Financial (NASDAQ: ETFC) is still trying to shrink its operations where it can.  This week, E*TRADE said it plans to cut its activities in its mutual fund operations.  The funds being targeted are the index funds, which include the E-Trade S&P 500 Index (ETSPX), the E-Trade Russell 2000 Index (ETRUX), the E-Trade Technology Index (ETTIX), and the E-Trade International Index (ETINX).

The funds are now no longer taking new assets and plan to close on or before March 27.

The E-Trade S&P 500 Index (ETSPX) fund has about $230 million in assets.  If you have followed the S&P it has not been a good year.  This was north of $11.00 a year ago and shares are now flirting with $6.00.

The problem is not just the performance of the funds.  It looks like these just haven’t gained any significant market penetration when you compare them to the billions of dollars invested in Fidelity, Vanguard, and Russell.

The company claims “…that this decision has nothing at all to do with the financial health of E-Trade Financial, which has been, and continues to be, very well capitalized by every applicable regulatory standard.”

Investors can still access roughly 7,000 funds via E-Trade.  This is just the end of the line for its own index funds mentioned and E-Trade has additional funds out there.

After all the economic woes that have hit E*TRADE it is still hard to know if this just a business decision or if it is the sign of yet another wave of problems.   With the common stock now under $1.00, the story pretty much speaks for itself.  E*TRADE was a $20.00 stock in mid-2007.

Jon C. Ogg
February 25, 2009