The Amazon.com of Mutual Funds? That’s E-Trade’s Aim

Analysts are taking notice of Internet broker E-Trade Group’s plan to sell its own mutual funds, in a move that could take business from Charles Schwab, Fidelity Investments and Vanguard Group.

The Palo Alto-based company filed with the Securities and Exchange Commission late Wednesday to start E-Trade Funds. The company says its first offering will be an index fund that tracks the performance of the blue-chip Standard & Poor’s 500 index.

E-Trade hopes to become the brokerage equivalent of bookseller Amazon.com, competing with established marketers with a cheaper, more targeted way to go after customers and get them to its virtual shop window and sales counter.

“They’re in a position to steal share” from Schwab, Vanguard and Fidelity, said Neil Bathon, president of Financial Research, a Boston-based fund research group.

In Nasdaq trading, E-Trade shares rose $1.31, or 6.7%, on Thursday to close at $21, their highest close since Aug. 27.

E-Trade’s revenue has risen tenfold in the last three years, and its market value has almost quadrupled to $1.2 billion since its August 1996 initial public offering.

“They’re executing Schwab’s playbook play by play,” said analyst Bill Burnham of Credit Suisse First Boston.

Earlier in the week, however, Schwab Chairman Charles R. Schwab, commenting on E-Trade’s fund plans, scoffed that E-Trade’s customers, rather than being long-term investors, are “people who use the Internet as a lottery tool.”

Vanguard, the No. 2 mutual fund company in terms of assets, plans to launch online trading by year-end. Fidelity, the world’s biggest mutual fund company, runs the fourth-largest online brokerage.

“We’ve got to offer a whole variety of investment products to keep our customers,” said Lisa Nash, E-Trade vice president of customer management. “It’s pretty basic science.”