State Street Corp.'s financial advisory arm stepped up its involvement Tuesday in the rapidly expanding exchange-traded fund business, launching portfolios based on the Fortune 500 and Fortune e-50 stock indexes.

The Boston banking company will list the Fortune 500 Index Tracking Stock and Fortune e-50 Index Tracking Stock funds on the American Stock Exchange. The Fortune 500 Index portfolio is based on Fortune's list of America's 500 largest companies. The Fortune e-50 Index fund is based on the 50 largest Internet companies.

Gus Fleites, director of the State Street global advisor unit's exchange-traded funds, said these products are more tax-efficient than open-ended mutual funds because they are listed on an exchange and can be bought and sold at intraday prices whereas other funds may only be bought at the end of the market day.

Exchange-traded funds fill a gap in the market, and many banks and fund companies, including Fidelity and Deutsche Bank, are moving in, said W. Christopher Maxwell, an analyst in Rockhall, Md.

"Exchange-traded funds allow investors to diversify their portfolio without necessarily buying a particular mutual fund and being held into the typical long-term mutual fund relationship," Mr. Maxwell said. "ETFs have had phenomenal returns in the Nasdaq market. This is not only a good money-making strategy, it is an intelligent investment move."

Gavin Quill, a senior vice president at Financial Research Corp. in Boston, said the exchange-traded fund market is clearly exploding. Three years ago, exchange-traded funds managed $3 billion of assets; they now manage $40 billion.

State Street is itself responsible for much of the growth. Besides the two new portfolios, State Street has three exchange-traded funds that track three major indexes: Diamond Trusts, the Nasdaq 100 Trust, and the S&P Depository Receipts, or Spiders fund. All told, the three funds manage $30.7 billion of assets, according to Financial Research.

Average daily trading volume for the Diamond funds is 750,000 shares; Spiders, 7.8 million; and Nasdaq 100, 22.7 million, making it one of the top 10 most actively traded issues.

Some analysts are wary of the sudden growth in exchange-traded funds, saying the risks may not be appropriate for some investors.

"Investors are using these funds for short-term speculation, and short-term trading leads to lower returns," said Bruce Johnson, a senior vice president and director of mutual fund sales and marketing at Conseco Funds.

The Diamond Trusts fund is down 5.4% this year, to $107.156; but the Nasdaq 100 Trust is up 8.1%, at $98.875; and Spiders is up 2.4%, at $149.718.

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