Re: 1/2/02 - [BCS] WSJ: Barclays Plays Hard in Battle With Vanguard for Investors
January 2, 2002
Barclays Plays Hard in Battle With Vanguard for Investors
By AARON LUCCHETTI
Staff Reporter of THE WALL STREET JOURNAL
The battle for dollars between money-management titans Vanguard Group and Barclays Global Investors took an unusual twist in 2001.
The firms are locked in fierce competition over one of the fastest-growing areas of the mutual fund world -- low-cost, passive "index funds" that merely try to match the performance of an index. Barclays Global Investors, with $770 billion in assets, and Vanguard, with $580 billion, have been pulling out all the stops to attract investors, advertising in print and over the airwaves and sending executives across the world to attract financial planners to their funds.
But earlier last year, some pro-Barclays messages on a popular investment Web page crossed the line, Vanguard officials say. The notes, posted on Morningstar Inc.'s Web site in 2000 and 2001, came from an individual identified only as "Dr. Option." The poster left 167 messages on the site to repeatedly praise exchange-traded funds, specifically those offered by Barclays, as a cheaper, more flexible alternative to Vanguard's index funds.
Vanguard, the No. 2 mutual fund player measured by assets, suspected the postings were coming from Barclays, a large manager of pension-fund money now trying to build a mutual-fund franchise. It was the work "of someone who knows the products inside out," says Vanguard spokesman Brian Mattes. "We were astonished."
That Vanguard would care about the musings of an anonymous Web author highlights the extent it and other fund firms will go in the race for investors' dollars. Since 2000, Barclays has launched more than 50 index funds, known as iShares, to compete with Vanguard's successful index-fund lineup. Once uncontested in providing index funds to individual investors, Vanguard now faces formidable competitors such as Barclays, State Street Global Advisors, and even Fidelity Investments.
A typical message from Dr. Option in August 2000 steered an investor looking for a good European stock fund to Barclays. "The very fund you're looking for is here. Barclays Global Investors recently launched the iShares MSCI EMU (European Monetary Union) Fund, under ticker symbol EZU. The fund's expense ratio is only .84%," said the posting. Dr. Option then explained how to buy the fund and provided a link to Barclays's Web site.
In another posting last year, Dr. Option compared a Barclays iShare fund with a Vanguard tax-managed small-cap fund, concluding that the Barclays product had "better index tracking" without "the high minimum purchase requirement" or extra fees for trading too often. "Wouldn't that be a better choice than Vanguard's TM [Tax Managed] Small Cap" fund, he asked.
Suspecting Barclays, Vanguard took the unusual step of calling Morningstar to ask about the postings. Wouldn't the Web site's rules prevent a Barclays employee from hyping the company's funds without identifying his background?
Carl Sibilski, a Morningstar official who coordinates its Web conversations, immediately wondered whether Brad Zigler, a Barclays executive in charge of marketing for iShares, would know the identity of Dr. Option. A former official at the Pacific Exchange, Mr. Zigler in 1999 and early 2000 wrote columns for Web site TheStreet.com, under the name Dr. Option or "Doc Options."
In June 2000, Mr. Sibilski recalls Dr. Option had sent about a dozen messages to various Morningstar conversation groups mentioning an appearance Mr. Zigler was scheduled to make on Morningstar's Web site. "It looks like someone in a sneaky way is trying to promote a fund, and that's not the spirit of our site," Mr. Sibilski says.
On Aug. 10, Mr. Sibilski e-mailed Barclays's Mr. Zigler to find out whether he was posting under the name Dr. Option. "I can't tell if it's you or one of your associates, but please identify your involvement with Barclays so that our members know the source of the information," he wrote.
Mr. Sibilski says he didn't hear back from Mr. Zigler, but he did notice something else: Dr. Option's postings stopped immediately.
On Oct. 8, about two months after the postings stopped, Mr. Zigler left Barclays, where he had worked for a little less than two years. "I resigned from BGI for a number of reasons that I'm not going to describe," he said in a recent phone interview. He acknowledged being called "Dr. Option" in connection with TheStreet.com columns, but declined to comment on the Morningstar postings or Mr. Sibilski's e-mail.
A spokesman for Barclays, a unit of British bank Barclays PLC, declined to comment on Mr. Zigler's departure or the postings. He added that the company doesn't use Web postings as part of its marketing strategy, and it does follow the National Association of Securities Dealers' guidelines on electronic communications, which classify bulletin-board postings to solicit business as advertisements that may require NASD review. (For its part, Vanguard doesn't permit its employees to participate in promotional investment-related Web discussions, says Michael Miller, Vanguard's managing director in charge of compliance.)
Most cases dealing with Web postings so far have involved allegations of false statements, says John Reed Stark, the head of Internet enforcement at the Securities and Exchange Commission. But he added that the SEC is "very concerned with anybody on a message board who's misleading someone else, whether by omission or otherwise." He declined to comment on the specifics of the Dr. Option case.
For those researching investments on the Web, the situation illustrates the difficulty of knowing the motives of people giving financial advice online. "It's not that the information is guaranteed wrong or fraudulent, but you have no way of verifying" who is writing it or why, says SEC spokesman John Nestor. His advice: "Don't give a posting any more credence than you'd give scribblings on a bathroom wall."
Write to Aaron Lucchetti at aaron.lucchetti@wsj.com
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