I am a big believer in owning foreign stocks as part of a diversified stock portfolio. While it's true that U.S. markets have had fairly high correlation to many European markets over the last couple of years, there are potential problems lurking for U.S. stocks in things such as deficits, the dollar, and slowing corporate earnings growth that may cause European markets to outperform ours.

Barclays (NYSE:BCS) is an interesting foreign company. American investors may know the British bank for its familiar iShares exchange traded funds (ETFs).

The bank's most recent financial report shows good growth across the board. The company has four other divisions in addition to Barclays' Global Investors (BGI), which is the division responsible for iShares: U.K. Banking, Private Client, Barclays Capital, and a credit card division. BGI grew earnings 73% in the first half of 2004 versus first half of 2003; Private Client and Barclays Capital grew by 52% and 37% respectively. The credit card division has had less-inspiring 11% growth.

Growth numbers have been good, and in other key metrics, Barclays can at least hold its own against the competition. Its 12 P/E and 19% return on equity compare reasonably well to HSBC Holdings' (NYSE:HBC) 16 P/E and 15% ROE, and Lloyds' (NYSE:LYG) P/E of 8 and ROE of 33%.

I see two catalysts that could cause Barclays to outperform the group. The first is consolidation. Rival HSBC Holdings has made several cross-Atlantic purchases, and U.K. bank Abbey National was recently swallowed up by Banco Santander Central Hispano (NYSE:STD). Many banking analysts expect more mergers to occur as banks seek to grow assets. Other banks, such as the Royal Bank of Scotland, have also been active on the acquisition trail.

Consolidation may or may not help Barclays, but the real driver for growth that I see is the iShares business at BGI. Exchange traded funds, which you can read about in more detail at Fool's ETF Center, are revolutionizing the investment business. BGI currently has 97 ETFs, with more planned. The ETF market has grown dramatically in the last few years. Currently the ETF business serves as only about 5% of the bank's operating income, but that number seems likely to grow as investors increasingly migrate from stock, mutual funds, and other investments to ETFs.

Barclays, as a bona fide ETF powerhouse, offers a prospect for growth that most banks do not have. While shareholders wait for the ETF industry to continue to evolve they will collect Barclays' 2.75% dividend yield.

Fool contributor Roger Nusbaum is an investment manager and wildland firefighter in Prescott, Ariz. At press time, neither he nor his clients owned any none of the stocks mentioned.